Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/210879
Authors: 
Pancost, N. Aaron
Robatto, Roberto
Year of Publication: 
2019
Series/Report no.: 
ESRB Working Paper Series 104
Abstract: 
We study optimal capital requirement regulation in a dynamic quantitative model in which nonfinancial firms, as well as households, hold deposits. Firms hold deposits for precautionary reasons and to facilitate the acquisition of production inputs. Our theoretical analysis identifies a novel general equilibrium channel that operates through firms' deposits and mitigates the cost of increasing capital requirements. We calibrate our model and find that the optimal capital requirement is 18.7% but only 13.6% in a comparable model in which only households hold deposits. Our novel channel accounts for most of the difference.
Subjects: 
deposit insurance
capital requirements
idiosyncratic risk
safe assets
JEL: 
E21
G21
G32
Persistent Identifier of the first edition: 
ISBN: 
978-92-9472-118-1
Document Type: 
Working Paper

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