This paper studies the macroeconomic effect of changes in the capital requirements set by microprudential bank regulators. The central result is that unanticipated increases in capital requirements lower lending to firms and households, reduce aggregate expenditure and raise credit spreads. A financial accelerator effect is found to amplify the macroeconomic responses to shifts in bank credit s...

The existing literature has displayed mixed results in terms of the relationship between tighter bank capital regulation and lending, which may be due to poor approximation requirements. We emphasise crucial role excess over minimum requirement, surplus, transmission more stringent regulation. Specifically, we explore effect higher requirements on credit growth Czech Republic, drawing a unique ...

How to design bank capital requirements when banks can misreport the value of their assets? We show that the answer depends critically on the existence of secondary markets for bank assets. Without secondary markets, capital requirements based on banks’reporting are more socially desirable than a fixed capital requirement if savings on costly bank capital are suffi ciently high. Yet with second...

Using data from three countries (U.S., Italy and Australia) and surveying related studies from several other countries in Europe, we investigate the effects of the New Basel Capital Accord (Basel II) on bank capital requirements for small and medium sized enterprises (SMEs). For each country, we analyze different possibilities that banking organizations have in considering SMEs, as either retai...

T he most important recent developments in bank regulation are based on capital requirements. For example, the Basle Accord of 1988 specifies that bank capital must be at least 8 percent of a bank’s risk-weighted assets.1 Also, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires regulators to shut down a bank whose capital has dropped below a cutoff level. While ...

This paper studies stock and mutual life insurance company formations in the first half of the 20th century. A common belief is that the growth of state consumer protection regulation rendered the mutual form irrelevant, but the paper finds little evidence connecting such regulation with declines in the form’s popularity. The exception is the initial capital requirement. Mutuals were formed alm...

Risk-based capital adequacy requirements are the main tool employed by government regulators to assure bank stability. This approach allows banks to choose from a number of alternative methods for calculating the required capital. Many systems for measuring risk differ significantly in cost, precision, and in the potential “capital savings”. We develop a statistical model for evaluating risk me...