tailieunhanh - Journal of Financial Stability 8

This paper analyzes the cyclical effects of bank capital requirements in a simple model with credit market imperfections. Lending rates are set as a premium over the cost of borrowing from the central bank, with the premium itself depending on collateral. Basel I- and Basel II-type regulatory regimes are defined and a capital channel is introduced through a signaling effect of capital buffers. The macroeconomic effects of | Journal ofFinancial Stability 8 2012 43-56 ELSEVIER Contents lists available at ScienceDirect Journal of Financial Stability journal homepage locate jfstabil Cyclical effects of bank capital requirements with imperfect credit markets Pierre-Richard Agénora b Luiz A. Pereira da Silvac a School of Social Sciences University of Manchester Oxford Road Manchester M13 9PL United Kingdom b Centre for Growth and Business Cycle Research United Kingdom c Central Bank of Brazil 70074-900 Brasilia Brazil ARTICLE INFO ABSTRACT Article history Received 6 October 2009 Received in revised form 20July 2010 Accepted 28 July 2010 Available online 11 August 2010 PACS E44 H52 G28 Keywords Procyclicality of financial system Bank capital regulatory regimes Capital buffers This paper analyzes the cyclical effects of bank capital requirements in a simple model with credit market imperfections. Lending rates are set as a premium over the cost of borrowing from the central bank with the premium itself depending on collateral. Basel I- and Basel II-type regulatory regimes are defined and a capital channel is introduced through a signaling effect of capital buffers. The macroeconomic effects of a negative supply shock are analyzed under both binding and nonbinding capital requirements. Factors affecting the procyclicality of each regime defined in terms of the behavior of the risk premium are also identified. 2010 Published by Elsevier . 1. Introduction The global financial crisis triggered by the collapse of the subprime mortgage market in the United States has led to a reassessment of the policies and rules that have allowed the buildup of financial fragilities. The regulatory framework and the distortions in bank behavior and the financial intermediation process that it may have led to have come under renewed scrutiny. Indeed it is now well recognized that the Basel I regulatory capital regime that . banks were subject to gave them strong incentives to reduce required