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Capital accumulation and regulation

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  • Yilmaz, Ensar

Abstract

This paper sets up a dynamic model that analyzes a bank's capital decision and the impact of this decision on her default risk and lending that affects aggregate output in the economy under regulation. The model shows that even though capital regulation may reduce the default risk of the bank, it may lead to credit crunch, hence the ensuing decline in output in the real sector. Furthermore, it appears that the risk-based capital requirement changes the composition of both liability and asset of the bank's balance sheet.

Suggested Citation

  • Yilmaz, Ensar, 2009. "Capital accumulation and regulation," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 760-771, August.
  • Handle: RePEc:eee:quaeco:v:49:y:2009:i:3:p:760-771
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    References listed on IDEAS

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    Cited by:

    1. Agénor, P.-R. & Alper, K. & Pereira da Silva, L., 2012. "Capital requirements and business cycles with credit market imperfections," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 687-705.
    2. repec:eee:spacre:v:17:y:2014:i:1:p:58-70 is not listed on IDEAS

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