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Assessing the Impact of Basel III: Review of Transmission Channels and Insights from Policy Models

Author

Listed:
  • Olivier de Bandt

    (Banque de France)

  • Bora Durdu

    (Federal Reserve Board)

  • Hibiki Ichiue

    (Keio University)

  • Yasin Mimir

    (European Stability Mechanism)

  • Jolan Mohimont

    (National Bank of Belgium)

  • Kalin Nikolov

    (European Central Bank)

  • Sigrid Roehrs

    (Deutsche Bundesbank)

  • Jean-Guillaume Sahuc

    (Banque de France and University Paris-Nanterre)

  • Valerio Scalone

    (European Central Bank)

  • Michael Straughan

    (Bank of England)

Abstract

This paper (i) reviews the different channels of transmission of prudential policy highlighted in the literature and (ii) provides a quantitative assessment of the impact of Basel III reforms using several policy-oriented DSGE models. It shows that the long-term effects on GDP of higher capital requirements are positive when the associated benefits are accounted for in addition to their costs. However, the results crucially depend on assumptions about crisis probability and severity. For liquidity regulations, only models capturing benefits of increased liquidity (e.g., preventing bank runs) show a net benefit.

Suggested Citation

  • Olivier de Bandt & Bora Durdu & Hibiki Ichiue & Yasin Mimir & Jolan Mohimont & Kalin Nikolov & Sigrid Roehrs & Jean-Guillaume Sahuc & Valerio Scalone & Michael Straughan, 2024. "Assessing the Impact of Basel III: Review of Transmission Channels and Insights from Policy Models," International Journal of Central Banking, International Journal of Central Banking, vol. 20(1), pages 1-52, February.
    • Handle: RePEc:ijc:ijcjou:y:2024:q:1:a:1
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    References listed on IDEAS

    as
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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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