Citation

Discussion Paper Details

Please find the details for DP13152 in an easy to copy and paste format below:

Full Details

Title: Bank Capital in the Short and in the Long Run

Author(s): Caterina Mendicino, Kalin Nikolov, Javier Suarez and Dominik Supera

Publication Date: September 2018

Keyword(s): Bank Fragility, Default Risk, effective lower bound, Financial Frictions, macroprudential policy and Transition Dynamics

Programme Area(s): Financial Economics and Monetary Economics and Fluctuations

Abstract: How far should capital requirements be raised in order to ensure a strong and resilient banking system without imposing undue costs on the real economy? Capital requirement increases make banks safer and are beneficial in the long run but carry transition costs because their imposition reduces aggregate demand on impact. Under accommodative monetary policy, increasing capital requirements addresses financial stability risks without imposing large transition costs on the economy. In contrast, when the policy rate hits the lower bound, monetary policy loses the ability to dampen the effects of the capital requirement increase on the real economy. The long-run benefits of higher capital requirements are larger and the transition costs are smaller when the risk that causes bank failure is high.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13152

Bibliographic Reference

Mendicino, C, Nikolov, K, Suarez, J and Supera, D. 2018. 'Bank Capital in the Short and in the Long Run'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13152