Procyclicality has emerged as a potential drawback to adoption of risk-sensitive bank capital requirements. Systematic risk factors may result in increases (decreases) in bank capital requirements when the economy is depressed (overheated), thereby decreasing (increasing) bank lending capacity and exacerbating business cycle fluctuations. Procyclicality may result from systematic risk emanating...

The stringency of bank liquidity and capital requirements should depend on their social costs benefits. This paper investigates welfare effects quantifies using sufficient statistics. special role banks as providers is embedded in an otherwise standard general equilibrium growth model. Capital mitigate moral hazard from deposit insurance, which, if unchecked, can lead to excessive credit risk a...