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Jointly optimal regulation of bank capital and liquidity
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Walther, Ansgar (2016) Jointly optimal regulation of bank capital and liquidity. Journal of Money, Credit and Banking, 48 (2-3). pp. 415-448. doi:10.1111/jmcb.12305
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Official URL: http://dx.doi.org/10.1111/jmcb.12305
Abstract
In an economy with financial frictions, banks endogenously choose excessive leverage and maturity mismatch in equilibrium, as they fail to internalize the risk of socially wasteful fire sales. Macroprudential regulators can achieve efficiency with simple linear constraints, which require less information than Pigouvian taxes. The liquidity coverage and net stable funding ratios of Basel III can implement efficiency. Additional microprudential regulation of leverage is required when bank failures are socially costly. Micro- and macroprudential rules are imperfect substitutes. Optimally, macroprudential policy reacts to systematic risk and credit conditions over the cycle, while microprudential policy reacts to systematic and idiosyncratic risk.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HG Finance | ||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Banks and banking -- Law and legislation, Liquidity (Economics) | ||||||||
| Journal or Publication Title: | Journal of Money, Credit and Banking | ||||||||
| Publisher: | Wiley-Blackwell Publishing, Inc. | ||||||||
| ISSN: | 0022-2879 | ||||||||
| Official Date: | March 2016 | ||||||||
| Dates: |
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| Volume: | 48 | ||||||||
| Number: | 2-3 | ||||||||
| Number of Pages: | 34 | ||||||||
| Page Range: | pp. 415-448 | ||||||||
| DOI: | 10.1111/jmcb.12305 | ||||||||
| Institution: | University of Warwick | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Funder: | Economic and Social Research Council (Great Britain) (ESRC) | ||||||||
| Grant number: | ES/I901957/1 (ESRC) |
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