Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229047
Authors: 
Muñoz, Manuel A.
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2433
Abstract: 
Recent empirical studies have documented two remarkable patterns shown by euro area banks in the aftermath of the Great Recession: (i) their tendency to boost capital ratios by shrinking assets (contraction of loans supply), and (ii) their reluctance to cut back on dividends (fall in retained earnings). First, I provide evidence of a potential link between these two trends. When shocks hit their pro…ts, banks tend to adjust retained earnings to smooth dividends. This generates bank equity and credit supply volatility. Then I develop a DSGE model that incorporates this mechanism to study the transmission and effects of a novel macroprudential policy rule - that I shall call Dividend Prudential Target (DPT) - aimed at complementing existing capital regulation by tackling this issue. Welfare-maximizing DPTs are effective (more than the CCyB) in smoothing the …financial and the business cycle (by means of less volatile retained earnings) and induce signi…cant welfare gains associated to a Basel III-type of capital regulation through various channels.
Subjects: 
dividend restrictions
countercyclical capital bu&#x00a4
er (CCyB)
capital requirements
macroprudential policy
DSGE models
JEL: 
E44
E61
G21
G28
G35
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4076-4
Document Type: 
Working Paper

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