Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208320
Authors: 
Mendicino, Caterina
Nikolov, Kalin
Suárez, Javier
Supera, Dominik
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper 2286
Abstract: 
How far should capital requirements be raised in order to ensure a strong and resilient banking system without imposing undue costs on the real economy? Capital requirement increases make banks safer and are beneficial in the long run but also entail transition costs because their imposition reduces credit supply and aggregate demand on impact. In the baseline scenario of a quantitative macro-banking model, 25% of the long-run welfare gains are lost due to transitional costs. The strength of monetary policy accommodation and the degree of bank riskiness are key determinants of the trade-off between the short-run costs and long-run benefits from changes in capital requirements.
Subjects: 
Macroprudential Policy
Default Risk
Effective Lower Bound
Transitional Dynamics
JEL: 
E3
E44
G01
G21
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3548-7
Document Type: 
Working Paper

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