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Deutsche Bundesbank, Forschungszentrum, Frankfurt am Main >
Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/19739
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| Title: | | Cyclical implications of minimum capital requirements  |
| Authors: | | Heid, Frank |
| Issue Date: | | 2005 |
| Series/Report no.: | | Discussion Paper, Series 2: Banking and Financial Supervision 2005,06 |
| Abstract: | | Capital requirements play a key role in the supervision and regulation of banks. The Basel Committee on Banking Supervision is now changing the current framework by introducing risk-sensitive capital charges. There have been concerns that this will unduly increase volatility in the banks' capital. Furthermore, when the credit supply is rationed, capital requirements may exacerbate an economic downturn. We examine the problem of cyclicality in a macroeconomic model which explicitly takes regulatory constraints into account. We find that the capital buffer which banks hold on top of the required minimum plays a crucial role in mitigating the volatility in capital requirements. Therefore, despite the fact that capital charges may vary significantly over time, the effects on the macroeconomy will be moderate. |
| Subjects: | | minimum capital requirements regulatory capital economic capital capital buffer pro-cyclicality business cycle bank lending channel |
| JEL: | | E32 G21 E44 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank
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