Banking Regulation and Financial Accelerators: A One-Period Model with Unlimited Liability
In this paper, we analyze the consequences of bank regulation on the size of the real sector. In particular, we address the question whether exogenous shocks on the return-risk characteristics of the technology and on the equity of the real sector are intensified or damped by a value-at-risk constraint on the credit portfolio of a bank. We consider a one-period model with three risk-averse agents, an investor, a bank, and a firm. The size of the markets for deposits and loans, their prices and the size of the real sector are endogenous. We find that stricter regulation results in higher loan rates, lower deposit rates, and lower activity in the real sector. A negative shock on the return-risk position or on the risk buffer of the real sector reduces the activities in the economy. Surprisingly, the sensitivity of the real sector's activities on negative shocks is smaller for a regulated financial sector than for a non-regulated one. Therefore, in our economy, imperfections in the financial sector do not result in procyclical or acceleration effects.
|Date of creation:||Jun 2004|
|Contact details of provider:|| Postal: Geschwister-Scholl-Platz 1, D-80539 Munich, Germany|
Web page: http://www.sfbtr15.de/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ben S. Bernanke & Alan S. Blinder, 1988.
"Credit, Money, and Aggregate Demand,"
NBER Working Papers
2534, National Bureau of Economic Research, Inc.
- Ben S. Bernanke, 1983.
"Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression,"
NBER Working Papers
1054, National Bureau of Economic Research, Inc.
- Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
- Jean-Pierre Zigrand & Jon Danielsson, 2001.
"What Happens When You Regulate Risk? Evidence from a Simple Equilibrium Model,"
FMG Discussion Papers
dp393, Financial Markets Group.
- Jean-Pierre Zigrand & Jon Danielsson, 2001. "What happens when you regulate risk?: evidence from a simple equilibrium model," LSE Research Online Documents on Economics 25069, London School of Economics and Political Science, LSE Library.
- Claudio Borio & Craig Furfine & Philip Lowe, 2001. "Procyclicality of the financial system and financial stability: issues and policy options," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 1-57 Bank for International Settlements.
- Repullo, Rafael & Suarez, Javier, 2004.
"Loan pricing under Basel capital requirements,"
Journal of Financial Intermediation,
Elsevier, vol. 13(4), pages 496-521, October.
- Koehn, Michael & Santomero, Anthony M, 1980. " Regulation of Bank Capital and Portfolio Risk," Journal of Finance, American Finance Association, vol. 35(5), pages 1235-1244, December.
- Rochet, Jean-Charles, 1992. "Capital requirements and the behaviour of commercial banks," European Economic Review, Elsevier, vol. 36(5), pages 1137-1170, June.
- Con Keating & Hyun Song Shin & Charles Goodhart & Jon Danielsson, 2001. "An Academic Response to Basel II," FMG Special Papers sp130, Financial Markets Group.
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998.
"The Financial Accelerator in a Quantitative Business Cycle Framework,"
98-03, C.V. Starr Center for Applied Economics, New York University.
- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
- 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.
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:17. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg)
If references are entirely missing, you can add them using this form.