Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273731 
Year of Publication: 
2023
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 19/2023
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
Based on a non-linear equilibrium model of the banking sector with an occasionally binding equity issuance constraint, we show that the economic impact of changes in bank capital requirements depends on the state of the macro-financial environment. In 'normal' states where banks do not face problems to retain enough profits to satisfy higher capital requirements, the impact on bank loan supply works through a 'pricing channel' which is small: around 0.1% less loans for a 1pp increase in capital requirements. In 'bad' states where banks are not able to come up with sufficient equity to satisfy capital requirements, the impact on loan supply works through a 'quantity channel', which acts like a financial accelerator and can be very large: up to 10% more loans for a capital requirement release of 1pp. Compared to existing DSGE models with a banking sector, which usually feature a constant lending response of around 1%, our state-dependent impact is an order of magnitude lower in 'normal' states and an order of magnitude higher in 'bad' states. Our results provide a theoretical justification for building up a positive countercyclical capital buffer in 'normal' macro-financial environments.
Subjects: 
Bank capital requirements
loan supply
dynamic stochastic equilibrium model
financial accelerator
global solution methods
JEL: 
D21
E44
E51
G21
G28
ISBN: 
978-3-95729-950-5
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.