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Basel Accord and Financial Intermediation: The Impact of Policy

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  • Martin Berka
  • Christian Zimmermann

Abstract

This paper studies loan activity in a context where banks must follow Basel Accord-type rules and acquire financing from households. Loan activity typically decreases when entrepreneurs’ investment returns decline, and we study which type of policy could revigorate an economy in a trough. We find that active monetary policy increases loan volume even when the economy is in good shape; introducing active capital requirement policy can be effective as well if it implies tightening of regulation in bad times. This is performed with an heterogeneous agent economy with occupational choice, financial intermediation and aggregate shocks to the distribution of entrepreneurial returns.

Suggested Citation

  • Martin Berka & Christian Zimmermann, 2012. "Basel Accord and Financial Intermediation: The Impact of Policy," CESifo Working Paper Series 3724, CESifo.
    • Handle: RePEc:ces:ceswps:_3724
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    Cited by:

    1. repec:hal:wpspec:info:hdl:2441/53r60a8s3kup1vc9l5643ehjk is not listed on IDEAS
    2. Stanimira Milcheva, 2012. "Monetary policy, financial intermediation, current account and housing market - how do they fit together?," ERES eres2012_151, European Real Estate Society (ERES).
    3. Ioannis N. Kallianiotis & Iordanis Petsas, 2020. "The Effectiveness of the Single Mandate of the ECB and the Dual of the Fed," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(4), pages 1-11.
    4. Ines Drumond, 2009. "Bank Capital Requirements, Business Cycle Fluctuations And The Basel Accords: A Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 798-830, December.
    5. Mauro Napoletano & Jean-Luc Gaffard & Zakaria Babutsidze, 2012. "Agent Based Models A New Tool for Economic and Policy Analysis," Working Papers hal-01070338, HAL.
    6. Alvaro Aguiar & Inês Drumond, 2007. "Monetary Policy Amplification Effects through a Bank Capital Channel," Money Macro and Finance (MMF) Research Group Conference 2006 47, Money Macro and Finance Research Group.
    7. Friedrich L. Sell, 2012. "Some of the Pros and Cons of Central Banking Supervision by the ECB," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(4), pages 40-45, December.
    8. Matthew Schurin, 2012. "Optimal Fiscal Policy and the Banking Sector," Working papers 2012-40, University of Connecticut, Department of Economics, revised Jul 2013.
    9. repec:spo:wpecon:info:hdl:2441/53r60a8s3kup1vc9l5643ehjk is not listed on IDEAS
    10. Milcheva, Stanimira, 2013. "Cross-country effects of regulatory capital arbitrage," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5329-5345.
    11. repec:spo:wpmain:info:hdl:2441/53r60a8s3kup1vc9l5643ehjk is not listed on IDEAS
    12. repec:spo:wpmain:info:hdl:2441/121881fn7h9haadnuq3gp3ujjd is not listed on IDEAS
    13. Mauro Napoletano & Jean-Luc Gaffard & Zakaria Babutsidze, 2012. "Agent Based Models," SciencePo Working papers Main hal-03461262, HAL.
    14. repec:hal:spmain:info:hdl:2441/121881fn7h9haadnuq3gp3ujjd is not listed on IDEAS
    15. repec:hal:spmain:info:hdl:2441/53r60a8s3kup1vc9l5643ehjk is not listed on IDEAS
    16. Friedrich L. Sell, 2012. "Some of the Pros and Cons of Central Banking Supervision by the ECB," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(04), pages 40-45, December.
    17. Grégory Levieuge, 2005. "Politique monétaire et prix d'actifs," Revue de l'OFCE, Presses de Sciences-Po, vol. 93(2), pages 317-355.
    18. Grégory Levieuge, 2004. "La neutralisation des mouvements et de l'impact des prix d'actifs doit-elle être du ressort de la politique monétaire ?," Revue d'Économie Financière, Programme National Persée, vol. 74(1), pages 253-284.
    19. Bojan Markovic, 2006. "Bank capital channels in the monetary transmission mechanism," Bank of England working papers 313, Bank of England.

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    More about this item

    Keywords

    bank capital channel; capital requirements; Basel Accord; occupational choice; bankruptcy; credit crunch;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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