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Bank Capital Regulation and Endogenous Shadow Banking Crises

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  • Poeschl, Johannes
  • Zhang, Xue

Abstract

We study the macroeconomic effects of bank capital requirements in an economy with two banking sectors. Banks are connected through a wholesale funding market. Anticipated banking crises occur endogenously in the form of self-fulfilling wholesale funding rollover crises. Retail bank capital requirements can reduce the frequency and severity of banking crises. Tightening retail bank capital requirements increases the size and leverage of the shadow banking sector through a novel channel that works through the anticipation of banking crises. A policy which corrects this spillover is more than twice as effective in reducing the frequency and severity of banking crises.

Suggested Citation

  • Poeschl, Johannes & Zhang, Xue, 2018. "Bank Capital Regulation and Endogenous Shadow Banking Crises," MPRA Paper 92529, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:92529
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    References listed on IDEAS

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    Cited by:

    1. Miguel Faria-e-Castro, 2019. "A Quantitative Analysis of Countercyclical Capital Buffers," Working Papers 2019-008, Federal Reserve Bank of St. Louis, revised 01 Jan 2020.

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    More about this item

    Keywords

    Bank capital regulation; shadow banking; anticipated bank runs.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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