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Bank Capital Regulation, Economic Stability, and Monetary Policy: What Does the Academic Literature Tell Us?

  • David VanHoose

    ()

This paper surveys academic research exploring the macroeconomic and monetary policy implications of the Basel I and Basel II systems of risk-based capital requirements. This research indicates that regulatory tightening of capital ratios can generate aggregate shocks, that capital regulation can enhance the procyclicality already inherent in banking, and that capital requirements can influence macroeconomic outcomes and alter the monetary policy transmission mechanism. The paper offers suggestions for future avenues of research on the interplay between bank capital regulation, the economy, and monetary policymaking. Copyright International Atlantic Economic Society 2008

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File URL: http://hdl.handle.net/10.1007/s11293-007-9100-z
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Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

Volume (Year): 36 (2008)
Issue (Month): 1 (March)
Pages: 1-14

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Handle: RePEc:kap:atlecj:v:36:y:2008:i:1:p:1-14
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  1. Mingo, John J, 1975. "Regulatory Influence on Bank Capital Investment," Journal of Finance, American Finance Association, vol. 30(4), pages 1111-21, September.
  2. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 436-457, October.
  3. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-41, February.
  4. Ralph Chami & Thomas F. Cosimano, 2001. "Monetary Policy with a touch of Basel," IMF Working Papers 01/151, International Monetary Fund.
  5. Skander Van den Heuvel, 2006. "The Bank Capital Channel of Monetary Policy," 2006 Meeting Papers 512, Society for Economic Dynamics.
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  7. Estrella, Arturo, 2004. "The cyclical behavior of optimal bank capital," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1469-1498, June.
  8. Wall, Larry D. & Peterson, David R., 1987. "The effect of capital adequacy guidelines on large bank holding companies," Journal of Banking & Finance, Elsevier, vol. 11(4), pages 581-600, December.
  9. Eva Catarineu-Rabell & Patricia Jackson & Dimitrios P. Tsomocos, 2002. "Procyclicality and the New Basel Accord: banks' choice of loan rating system," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
  10. Darryll Hendricks & Beverly Hirtle, 1997. "Bank capital requirements for market risk: the internal models approach," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-12.
  11. Stephen G. Cecchetti & Lianfi Li, 2005. "Do Capital Adequacy Requirements Matter for Monetary Policy?," NBER Working Papers 11830, National Bureau of Economic Research, Inc.
  12. Joe Peek & Eric Rosengren, 1993. "The Capital Crunch: Neither A Borrower Nor A Lender Be," Boston College Working Papers in Economics 243, Boston College Department of Economics.
  13. Stéphanie Stolz, 2002. "The Relationship between Bank Capital, Risk-Taking, and Capital Regulation: A Review of the Literature," Kiel Working Papers 1105, Kiel Institute for the World Economy.
  14. Misa Tanaka, 2002. "How Do Bank Capital and Capital Adequacy Regulation Affect the Monetary Transmission Mechanism?," CESifo Working Paper Series 799, CESifo Group Munich.
  15. Pederzoli, Chiara & Torricelli, Costanza, 2005. "Capital requirements and business cycle regimes: Forward-looking modelling of default probabilities," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 3121-3140, December.
  16. Lea Zicchino, 2005. "A model of bank capital, lending and the macro economy: Basel I versus Basel II," Money Macro and Finance (MMF) Research Group Conference 2005 88, Money Macro and Finance Research Group.
  17. Kishan, Ruby P. & Opiela, Timothy P., 2006. "Bank capital and loan asymmetry in the transmission of monetary policy," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 259-285, January.
  18. Skander J. Van den Heuvel, 2002. "Does bank capital matter for monetary transmission?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 259-265.
  19. Miyake, Atsushi & Nakamura, Tamotsu, 2007. "A dynamic analysis of an economy with banking optimization and capital adequacy regulations," Journal of Economics and Business, Elsevier, vol. 59(1), pages 14-27.
  20. Blum, Jurg & Hellwig, Martin, 1995. "The macroeconomic implications of capital adequacy requirements for banks," European Economic Review, Elsevier, vol. 39(3-4), pages 739-749, April.
  21. Diana Hancock & James A. Wilcox, 1994. "Bank Capital and the Credit Crunch: The Roles of Risk-Weighted and Unweighted Capital Regulations," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(1), pages 59-94.
  22. Kopecky, Kenneth J. & VanHoose, David, 2004. "A model of the monetary sector with and without binding capital requirements," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 633-646, March.
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  24. Maria Concetta Chiuri & Giovanni Ferri & Giovanni Majnoni, 2000. "The Macroeconomic Impact Of Bank Capital Requirements In Emerging Economies: Past Evidence To Assess The Future," series 0002, Dipartimento di Scienze Economiche e Metodi Matematici - Università di Bari, revised Sep 2000.
  25. Berger, Allen N & Udell, Gregory F, 1994. "Do Risk-Based Capital Allocate Bank Credit and Cause a "Credit Crunch"' in the United States?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 585-628, August.
  26. Kopecky, Kenneth J. & VanHoose, David, 2004. "Bank capital requirements and the monetary transmission mechanism," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 443-464, September.
  27. Laurence Ball & N Gregory Mankiw & Ricardo Reis, 2003. "Monetary Policy for Inattentive Economies," Economics Working Paper Archive 491, The Johns Hopkins University,Department of Economics.
  28. Peek, Joe & Rosengren, Eric, 1995. "Bank regulation and the credit crunch," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 679-692, June.
  29. Raj Aggarwal & Kevin T. Jacques, 1998. "Assessing the impact of prompt corrective action on bank capital and risk," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 23-32.
  30. Frederick T. Furlong, 1992. "Capital regulation and bank lending," Economic Review, Federal Reserve Bank of San Francisco, pages 23-33.
  31. John J. Seater, 2000. "Optimal Bank Regulation and Monetary Policy," Center for Financial Institutions Working Papers 00-38, Wharton School Center for Financial Institutions, University of Pennsylvania.
  32. Charles Goodhart & Boris Hofmann & Miguel Segoviano, 2004. "Bank Regulation and Macroeconomic Fluctuations," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 591-615, Winter.
  33. Gordy, Michael B. & Howells, Bradley, 2006. "Procyclicality in Basel II: Can we treat the disease without killing the patient?," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 395-417, July.
  34. Joseph G. Haubrich & Paul Wachtel, 1993. "Capital requirements and shifts in commercial bank portfolios," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 2-15.
  35. Jacques, Kevin & Nigro, Peter, 1997. "Risk-based capital, portfolio risk, and bank capital: A simultaneous equations approach," Journal of Economics and Business, Elsevier, vol. 49(6), pages 533-547.
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  37. VanHoose, David, 2007. "Theories of bank behavior under capital regulation," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3680-3697, December.
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