Bericht

Optimal variable bank capital requirements

The purpose of the "counter-cyclical capital buffer" (buffer) is to dampen procyclicality in the financial system, absorb capital losses and prevent a credit crunch during recessions. In this paper, a stylized analytical expression for optimal buffer policy is presented. Results are derived within a minimalist model framework, useful for a transparent presentation of how authorities' preferences and structural parameters have implications for optimal buffer policy. In the model, there is a risk of a financial crisis, and an ex ante higher buffer may counteract the effects of it on the economy. The buffer also affects output in the short term, and here the difference between banks' actual capital coverage ratio and capital requirements plays a role. Under quite general conditions, authorities will want to lower the buffer and allow banks to be less well capitalized today if the output gap is negative. The model illustrates that unless authorities care also about a stable bank capital coverage ratio (in addition to output stabilization and the costs of crisis), optimal policy may prescribe a very volatile buffer. In particular, that is the case if the effect of the buffer on output is weak. This result highlights the importance of learning more about the effects of buffer policy in order to achieve good policy design.

Sprache
Englisch
ISBN
978-82-8379-213-3

Erschienen in
Series: Staff Memo ; No. 9/2021

Klassifikation
Wirtschaft
Business Fluctuations; Cycles
Financial Markets and the Macroeconomy
Policy Objectives; Policy Designs and Consistency; Policy Coordination
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
Thema
CCyB
Optimal policy
Crisis

Ereignis
Geistige Schöpfung
(wer)
Alstadheim, Ragna
Ereignis
Veröffentlichung
(wer)
Norges Bank
(wo)
Oslo
(wann)
2021

Handle
Letzte Aktualisierung
10.03.2025, 11:43 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Bericht

Beteiligte

  • Alstadheim, Ragna
  • Norges Bank

Entstanden

  • 2021

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