Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/197922
Authors: 
Schroth, Josef
Year of Publication: 
2019
Series/Report no.: 
Bank of Canada Staff Working Paper 2019-8
Abstract: 
This paper studies optimal bank capital requirements in a model of endogenous bank funding conditions. I find that requirements should be higher during good times such that a macroprudential "buffer" is provided. However, whether banks can use buffers to maintain lending during a financial crisis depends on the capital requirement during the subsequent recovery. The reason is that a high requirement during the recovery lowers bank shareholder value during the crisis and thus creates funding-market pressure to use buffers for deleveraging rather than for maintaining lending. Therefore, buffers are useful if banks are not required to rebuild them quickly.
Subjects: 
Credit and credit aggregates
Financial stability
Financial system regulation and policies
Business fluctuations and cycles
Credit risk management
Lender of last resort
JEL: 
E13
E32
E44
Document Type: 
Working Paper
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