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A DGSE Model to Assess the Post-Crisis Regulation of Universal Banks

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  • O. de Bandt
  • M. Chahad

Abstract

The paper assesses the overall consistency and impact on both the financial sector and the real economy, of the numerous banking regulations that have been introduced in the aftermath of the Great Financial Crisis. For this purpose, we develop, within a multi-period asset framework, a large scale DSGE model with a real and a financial sector. Universal banks grant credit but invest also in corporate and sovereign bonds. Small companies are financed through bank loans only, while large corporate can also issue bonds. The main findings of the paper are that: (i) the implementation of liquidity regulation which affects private consumption dynamics has a less persistent effect than solvency regulation that affects loan distribution as well as investment; (ii) the model assesses to what extent the Liquidity Coverage Ratio may induce banks to substitute sovereign bonds to business loans; (iii) liquidity and solvency regulations appear to be complementary; (iv) while the implementation of the LCR has qualitatively similar results as the NSFR, even if, quantitatively, the latter has a more mMarrakech_14oderate effect.

Suggested Citation

  • O. de Bandt & M. Chahad, 2016. "A DGSE Model to Assess the Post-Crisis Regulation of Universal Banks," Working papers 602, Banque de France.
  • Handle: RePEc:bfr:banfra:602
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    3. Clemens Bonner, 2016. "Preferential Regulatory Treatment and Banks' Demand for Government Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(6), pages 1195-1221, September.
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    5. Banerjee, Ryan N. & Mio, Hitoshi, 2018. "The impact of liquidity regulation on banks," Journal of Financial Intermediation, Elsevier, vol. 35(PB), pages 30-44.
    6. M. Birn & M. Dietsch & D. Durant, 2017. "How to reach all Basel requirements at the same time?," Débats économiques et financiers 28, Banque de France.
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    Cited by:

    1. M. Birn & M. Dietsch & D. Durant, 2017. "How to reach all Basel requirements at the same time?," Débats économiques et financiers 28, Banque de France.
    2. repec:bfr:rueban:2018:67 is not listed on IDEAS

    More about this item

    Keywords

    Basel III; Solvency ratio; Liquidity ratios; Multi-period assets; Firms' heterogeneity.;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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