The Experts below are selected from a list of 360 Experts worldwide ranked by ideXlab platform
Rafael Repullo - One of the best experts on this subject based on the ideXlab platform.
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cyclical adjustment of Capital Requirements a simple framework
Journal of Financial Intermediation, 2013Co-Authors: Rafael RepulloAbstract:We present a model of an economy with heterogeneous banks that may be funded with uninsured deposits and equity Capital. Capital serves to ameliorate a moral hazard problem in the choice of risk. There is a fixed aggregate supply of bank Capital, so the cost of Capital is endogenous. A regulator sets risk-sensitive Capital Requirements in order to maximize a social welfare function that incorporates a social cost of bank failure. We consider the effect of a negative shock to the supply of bank Capital and show that optimal Capital Requirements should be lowered. Failure to do so would keep banks safer but produce a large reduction in aggregate investment. The result provides a rationale for the cyclical adjustment of risk-sensitive Capital Requirements.
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cyclical adjustment of Capital Requirements a simple framework
Social Science Research Network, 2012Co-Authors: Rafael RepulloAbstract:We present a simple model of an economy with heterogeneous banks that may be funded with uninsured deposits and equity Capital. Capital serves to ameliorate a moral hazard problem in the choice of risk. There is a fixed aggregate supply of bank Capital, so the cost of Capital is endogenous. A regulator sets risk-sensitive Capital Requirements in order to maximize a social welfare function that incorporates a social cost of bank failure. We consider the effect of a negative shock to the supply of bank Capital and show that optimal Capital Requirements should be lowered. Failure to do so would keep banks safer but produce a large reduction in aggregate investment. The result provides a rationale for the cyclical adjustment of risk-sensitive Capital Requirements.
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loan pricing under basel Capital Requirements
Journal of Financial Intermediation, 2004Co-Authors: Rafael Repullo, Javier SuarezAbstract:Abstract We analyze the loan pricing implications of the reform of bank Capital regulation known as Basel II. We consider a perfectly competitive market for business loans where, as in the model underlying the internal ratings based (IRB) approach of Basel II, a single risk factor explains the correlation in defaults across firms. Our loan pricing equation implies that low risk firms will achieve reductions in their loan rates by borrowing from banks adopting the IRB approach, while high risk firms will avoid increases in their loan rates by borrowing from banks that adopt the less risk-sensitive standardized approach of Basel II. We also show that only a very high social cost of bank failure might justify the proposed IRB Capital charges, partly because the net interest income from performing loans is not counted as a buffer against credit losses. A net interest income correction for IRB Capital Requirements is proposed.
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Capital Requirements market power and risk taking in banking
Journal of Financial Intermediation, 2004Co-Authors: Rafael RepulloAbstract:This paper presents a dynamic model of imperfect competition in banking where the banks can invest in a prudent or a gambling asset. We show that if intermediation margins are small, the banks’ franchise values will be small, and in the absence of regulation only a gambling equilibrium will exist. In this case, either flat-rate Capital Requirements or binding deposit rate ceilings can ensure the existence of a prudent equilibrium, although both have a negative impact on deposit rates. Such impact does not obtain with either risk-based Capital Requirements or nonbinding deposit rate ceilings, but only the former are always effective in controlling risk-shifting incentives.
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loan pricing under basel Capital Requirements
Social Science Research Network, 2003Co-Authors: Rafael Repullo, Javier SuarezAbstract:We analyse the implications for the pricing of bank loans of the reform of Capital regulation known as Basel II. We consider a perfectly competitive market for business loans where, as in the model underlying the internal ratings based (IRB) approach of Basel II, a single risk factor explains the correlation in defaults across firms. Our loan pricing equation implies that low-risk firms will achieve reductions in their loan rates by borrowing from banks adopting the IRB approach, while high-risk firms will avoid increases in their loan rates by borrowing from banks that adopt the less risk-sensitive standardized approach of Basel II. We also show that only an extremely high social cost of bank failure might justify the proposed IRB Capital charges for high-risk loans, partly because the margin income from performing loans is not counted as a buffer against credit losses, and we propose a margin income correction for IRB Capital Requirements.
Russell Cooper - One of the best experts on this subject based on the ideXlab platform.
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bank runs deposit insurance and Capital Requirements
International Economic Review, 2002Co-Authors: Russell Cooper, Thomas W RossAbstract:Diamond and Dybvig provide a model of intermediation in which deposit insurance can avoid socially undesirable bank runs. We extend the Diamond-Dybvig model to evaluate the costs and benefits of deposit insurance in the presence of moral hazard by banks and monitoring by depositors. We find that complete deposit insurance alone will not support the first-best outcome: depositors will not have adequate incentives for monitoring and banks will invest in excessively risky projects. However, an additional Capital requirement for banks can restore the first-best allocation. Copyright 2002 by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Resarch Association
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bank runs deposit insurance and Capital Requirements
Social Science Research Network, 2002Co-Authors: Russell Cooper, Thomas W RossAbstract:Diamond and Dybvig provide a model of intermediation in which deposit insurance can avoid socially undesirable bank runs. We extend the Diamond-Dybvig model to evaluate the costs and benefits of deposit insurance in the presence of moral hazard by banks and monitoring by depositors. We find that complete deposit insurance alone will not support the first-best outcome: Depositors will not have adequate incentives for monitoring and banks will invest in excessively risky projects. However, an additional Capital requirement for banks can restore the first-best allocation.
Tomasz Wieladek - One of the best experts on this subject based on the ideXlab platform.
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how does credit supply respond to monetary policy and bank minimum Capital Requirements
European Economic Review, 2016Co-Authors: Shekhar Aiyar, Charles W Calomiris, Tomasz WieladekAbstract:Abstract We use data on UK banks׳ minimum Capital Requirements to study the interaction of monetary policy and Capital requirement regulation. UK banks were subject to both time-varying Capital Requirements and changes in interest rate policy. Tightening of either Capital Requirements or monetary policy reduces the supply of lending. Lending by large banks reacts substantially to Capital requirement changes, but not to monetary policy changes. Lending by small banks reacts to both. There is little evidence of interaction between these two policy instruments. The differences in the responses of small and large banks identify important distributional consequences within the financial system of these two policy instruments. Finally, our findings do not corroborate theoretical models that raise concerns about complex interactions between monetary policy and macro-prudential variation in Capital Requirements.
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how does credit supply respond to monetary policy and bank minimum Capital Requirements
Research Papers in Economics, 2014Co-Authors: Shekhar Aiyar, Charles W Calomiris, Tomasz WieladekAbstract:We use data on UK banks’ minimum Capital Requirements to study the interaction of monetary policy and Capital requirement regulation. UK banks were subject to both time-varying Capital Requirements and changes in interest rate policy. Tightening of either Capital Requirements or monetary policy reduces the supply of lending. Lending by large banks reacts substantially to Capital requirement changes, but not to monetary policy changes. Lending by small banks reacts to both. There is little evidence of interaction between these two policy instruments. The differences in the responses of small and large banks, and the lack of interaction between Capital requirement changes and monetary policy, have important policy implications. Our results confirm the theoretical consensus view that monetary policy should focus on price stability objectives and that Capital requirement changes are a more effective tool to achieve financial stability objectives related to loan supply. We also identify important distributional consequences within the financial system of these two policy instruments. Finally, our findings do not corroborate theoretical models that raise concerns about complex interactions between monetary policy and macroprudential variation in Capital Requirements.
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the international transmission of bank Capital Requirements evidence from the uk
Journal of Financial Economics, 2014Co-Authors: Shekhar Aiyar, Charles W Calomiris, John Hooley, Yevgeniya Korniyenko, Tomasz WieladekAbstract:Abstract We use data on UK banks׳ minimum Capital Requirements to study the impact of changes to bank-specific Capital Requirements on cross-border bank loan supply from 1999Q1 to 2006Q4. By examining a sample in which each recipient country has multiple relationships with UK-resident banks, we are able to control for demand effects. We find a negative and statistically significant effect of changes to banks׳ Capital Requirements on cross-border lending: a 100 basis point increase in the requirement is associated with a reduction in the growth rate of cross-border credit of 5.5 percentage points. We also find that banks tend to favor their most important country relationships, so that the negative cross-border credit supply response in “core” countries is significantly less than in others. Banks tend to cut back cross-border credit to other banks (including foreign affiliates) more than to firms and households, consistent with shorter maturity, wholesale lending which is easier to roll off and may be associated with weaker borrowing relationships.
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the international transmission of bank Capital Requirements evidence from the united kingdom
Research Papers in Economics, 2014Co-Authors: Shekhar Aiyar, Charles W Calomiris, John Hooley, Yevgeniya Korniyenko, Tomasz WieladekAbstract:We use data on UK banks’ minimum Capital Requirements to study the impact of changes to bank-specific Capital Requirements on cross-border bank loan supply from 1999 Q1 to 2006 Q4. By examining a sample in which each recipient country has multiple relationships with UK-resident banks, we are able to control for demand effects. We find a negative and statistically significant effect of changes to banks’ Capital Requirements on cross-border lending: a 100 basis point increase in the requirement is associated with a reduction in the growth rate of cross-border credit of 5.5 percentage points. We also find that banks tend to favour their most important country relationships, so that the negative cross-border credit supply response in ‘core’ countries is significantly less than in others. Banks tend to cut back cross-border credit to other banks (including foreign affiliates) more than to firms and households, consistent with shorter maturity, wholesale lending which is easier to roll off and may be associated with weaker borrowing relationships.
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identifying channels of credit substitution when bank Capital Requirements are varied
Research Papers in Economics, 2014Co-Authors: Shekhar Aiyar, Charles W Calomiris, Tomasz WieladekAbstract:What kinds of credit substitution, if any, occur when changes to banks’ minimum Capital Requirements induce banks to change their supply of credit? The question is central to the new ‘macroprudential’ policy regimes that have been constructed in the wake of the global financial crisis, under which minimum Capital ratio Requirements for banks will be employed to control the supply of bank credit. Regulatory efforts to influence the aggregate supply of credit may be thwarted to some degree by ‘leakages’, as other credit suppliers substitute for the variation induced in the supply of credit by regulated banks. Credit substitution could occur through foreign banks operating domestic branches that are not subject to Capital regulation by the domestic supervisor, or through bond and stock markets. The UK experience for the period 1998-2007 is ideally suited to address these questions, given its unique regulatory history (UK bank regulators imposed bank-specific and time-varying Capital Requirements on regulated banks), the substantial presence of both domestically regulated and foreign regulated banks, and the United Kingdom’s deep Capital markets. We show that leakage by foreign branches can occur either as a result of competition between branches and regulated banks that are parts of separate banking groups, or because a foreign banking group shifts loans from its UK-regulated subsidiary to its affiliated branch. The responsiveness of affiliated branches is nearly twice as strong. We do not find any evidence for leakages through Capital markets. These findings reinforce the need for the type of international co-ordination, specifically reciprocity in Capital requirement regulation, which is embedded in Basel III and the European CRD IV directive, which will be gradually phased in starting January 2014.
Thomas W Ross - One of the best experts on this subject based on the ideXlab platform.
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bank runs deposit insurance and Capital Requirements
International Economic Review, 2002Co-Authors: Russell Cooper, Thomas W RossAbstract:Diamond and Dybvig provide a model of intermediation in which deposit insurance can avoid socially undesirable bank runs. We extend the Diamond-Dybvig model to evaluate the costs and benefits of deposit insurance in the presence of moral hazard by banks and monitoring by depositors. We find that complete deposit insurance alone will not support the first-best outcome: depositors will not have adequate incentives for monitoring and banks will invest in excessively risky projects. However, an additional Capital requirement for banks can restore the first-best allocation. Copyright 2002 by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Resarch Association
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bank runs deposit insurance and Capital Requirements
Social Science Research Network, 2002Co-Authors: Russell Cooper, Thomas W RossAbstract:Diamond and Dybvig provide a model of intermediation in which deposit insurance can avoid socially undesirable bank runs. We extend the Diamond-Dybvig model to evaluate the costs and benefits of deposit insurance in the presence of moral hazard by banks and monitoring by depositors. We find that complete deposit insurance alone will not support the first-best outcome: Depositors will not have adequate incentives for monitoring and banks will invest in excessively risky projects. However, an additional Capital requirement for banks can restore the first-best allocation.
Jens Hagendorff - One of the best experts on this subject based on the ideXlab platform.
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the risk sensitivity of Capital Requirements evidence from an international sample of large banks
Review of Finance, 2013Co-Authors: Francesco Vallascas, Jens HagendorffAbstract:Using an international sample of large banks between 2000 and 2010, we evaluate the risk sensitivity of minimum Capital Requirements. Our results show that risk-weighted assets (the regulatory measure of portfolio risk, which determines minimum Capital Requirements) are ill-calibrated to a market measure of bank portfolio risk. We show that this low-risk sensitivity of Capital Requirements permits banks to build up Capital buffers by underreporting their portfolio risk and undermines banks' ability to withstand adverse shocks. While the risk sensitivity of Capital Requirements is higher for banks that have adopted Basel II, it remains low across banks and countries. Copyright 2013, Oxford University Press.
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the risk sensitivity of Capital Requirements evidence from an international sample of large banks
Review of Finance, 2013Co-Authors: Francesco Vallascas, Jens HagendorffAbstract:Using an international sample of large banks between 2000 and 2010, we evaluate the risk sensitivity of minimum Capital Requirements. Our results show that risk-weighted assets (the regulatory measure of portfolio risk, which determines minimum Capital Requirements) are ill-calibrated to a market measure of bank portfolio risk. We show that this low-risk sensitivity of Capital Requirements permits banks to build up Capital buffers by underreporting their portfolio risk and undermines banks’ ability to withstand adverse shocks. While the risk sensitivity of Capital Requirements is higher for banks that have adopted Basel II, it remains low across banks and countries.
