Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87172
Authors: 
Gornicka, Lucyna
van Wijnbergen, Sweder
Year of Publication: 
2013
Series/Report no.: 
Tinbergen Institute Discussion Paper 13-013/VI/DSF50
Abstract: 
We investigate actual capital chosen by banks in presence of capital minimum requirements and ex-post penalties for violating them. The model yields excess capital that is always positive and increases during times of distress in the economy, which is in line with empirical evidence. Next, we show that in presence of ex-post violation penalties the introduction of the conservation buffer under Basel III will not contribute to lowering the pro-cyclicality of capital regulations. The countercyclical buffer proposed under Basel III is then even more desirable as it significantly attenuates fluctuations of actual capital also when the penalties are accounted for.
Subjects: 
capital requirements
Basel regulatory framework
excess capital
countercyclical buffer
market discipline
JEL: 
G21
G28
E32
E44
Document Type: 
Working Paper

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