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Bank Capital Regulation, Economic Stability, and Monetary Policy: What Does the Academic Literature Tell Us?

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  • David VanHoose

Abstract

This paper surveys academic research exploring the macroeconomic and monetary policy implications of the Basel I and Basel II systems of risk-based capital requirements. This research indicates that regulatory tightening of capital ratios can generate aggregate shocks, that capital regulation can enhance the procyclicality already inherent in banking, and that capital requirements can influence macroeconomic outcomes and alter the monetary policy transmission mechanism. The paper offers suggestions for future avenues of research on the interplay between bank capital regulation, the economy, and monetary policymaking. Copyright International Atlantic Economic Society 2008

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  • David VanHoose, 2008. "Bank Capital Regulation, Economic Stability, and Monetary Policy: What Does the Academic Literature Tell Us?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 36(1), pages 1-14, March.
    • Handle: RePEc:kap:atlecj:v:36:y:2008:i:1:p:1-14
    DOI: 10.1007/s11293-007-9100-z
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    Cited by:

    1. Chami, Ralph & Cosimano, Thomas F., 2010. "Monetary policy with a touch of Basel," Journal of Economics and Business, Elsevier, vol. 62(3), pages 161-175, May.
    2. Jokipii, Terhi & Milne, Alistair, 2011. "Bank capital buffer and risk adjustment decisions," Journal of Financial Stability, Elsevier, vol. 7(3), pages 165-178, August.
    3. Gregory deWalque & Olivier Pierrard & Abdelaziz Rouabah, 2010. "Financial (In)Stability, Supervision and Liquidity Injections: A Dynamic General Equilibrium Approach," Economic Journal, Royal Economic Society, vol. 120(549), pages 1234-1261, December.
    4. Eva Schliephake & Roland Kirstein, 2013. "Strategic Effects of Regulatory Capital Requirements in Imperfect Banking Competition," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 675-700, June.
    5. Frache, Serafín & García-Cicco, Javier & Ponce, Jorge, 2023. "Countercyclical prudential tools in an estimated DSGE model," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(3).
    6. Deli, Yota D. & Hasan, Iftekhar, 2017. "Real effects of bank capital regulations: Global evidence," Bank of Finland Research Discussion Papers 23/2017, Bank of Finland.
    7. Song, Joonhyuk & Ryu, Doojin, 2016. "Credit cycle and balancing the capital gap: Evidence from Korea," Economic Systems, Elsevier, vol. 40(4), pages 595-611.
    8. Hans Degryse & Sanja Jakovljević & Steven Ongena, 2015. "A Review of Empirical Research on the Design and Impact of Regulation in the Banking Sector," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 423-443, December.
    9. Athanasoglou, Panayiotis P. & Daniilidis, Ioannis & Delis, Manthos D., 2014. "Bank procyclicality and output: Issues and policies," Journal of Economics and Business, Elsevier, vol. 72(C), pages 58-83.
    10. Deli, Yota D. & Hasan, Iftekhar, 2017. "Real effects of bank capital regulations: Global evidence," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 217-228.
    11. Adela Socol, 2011. "Internal Banking Control And Audit: A Comparative Approach In The Romanian Banking Sector," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(13), pages 1-22.
    12. Mr. Francois Boutin-Dufresne & Santiago Peña & Mr. Oral Williams & Mr. Tomasz A. Zawisza, 2013. "Benchmarking Banking Sector Efficiency Across Regional Blocks in Sub-Saharan Africa: What Room for Policy?," IMF Working Papers 2013/051, International Monetary Fund.
    13. Aiyar, Shekhar & Calomiris, Charles W. & Hooley, John & Korniyenko, Yevgeniya & Wieladek, Tomasz, 2014. "The international transmission of bank capital requirements: Evidence from the UK," Journal of Financial Economics, Elsevier, vol. 113(3), pages 368-382.
    14. Xiong, Wanting & Wang, Yougui, 2022. "A reformulation of the bank lending channel under multiple prudential regulations," Economic Modelling, Elsevier, vol. 114(C).
    15. Piotr Wdowiński, 2013. "Banking Sector and Real Economy of Poland – Analysis with a VAR Model," FindEcon Chapters: Forecasting Financial Markets and Economic Decision-Making, in: Władysław Milo & Piotr Wdowiński (ed.), Acta Universitatis Lodziensis. Folia Oeconomica nr 295/2013 - Financial Markets and Macroprudential Policy, edition 1, volume 127, chapter 2, pages 25-43, University of Lodz.
    16. repec:zbw:bofrdp:2017_023 is not listed on IDEAS
    17. Liu Yang & Qing Zhou & Min Zhu, 2021. "De‐risking through equity holdings: Bank and insurer behavior under capital requirements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1889-1917, October.
    18. Shekhar Aiyar & Charles W. Calomiris & Tomasz Wieladek, 2012. "Does Macro-Pru Leak? Evidence from a UK Policy Experiment," NBER Working Papers 17822, National Bureau of Economic Research, Inc.
    19. Schmaltz, Christian & Heidorn, Thomas & Torchiani, Ingo, 2018. "Distance to compliance portfolios: An integrated shortfall measure for basel III," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 87-101.
    20. Deli, Yota D. & Hasan, Iftekhar, 2017. "Real effects of bank capital regulations: Global evidence," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 217-228.
    21. Kazeem O. Salaam, 2015. "Procyclicality Effects on Bank Lending Decisions: A Case Study of the British Banking Sector," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(2), pages 185-194, April.
    22. Hollander, Hylton, 2017. "Macroprudential policy with convertible debt," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 285-305.
    23. Shekhar Aiyar & Charles W. Calomiris & Tomasz Wieladek, 2014. "Does Macro‐Prudential Regulation Leak? Evidence from a UK Policy Experiment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 181-214, February.

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    More about this item

    Keywords

    Bank capital regulation; E51; G28;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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