SMU SOE Seminar (May 21, 2018): Banking Dynamics and Capital Regulation

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ABSTRACT This paper proposes a quantitative model of the banking sector to analyze potential aggregate impacts of the minimum capital requirements and counter-cyclical capital buffer in Basel III capital regulations. In the literature, an analysis on aggregate impacts of counter-cyclical capital buffer is limited. To fill this gap, the paper augments a standard banking model in two ways: (i) it allows banks to default due to un-diversifiable risk based on the assumption of incomplete markets with respect to credit risk of bank loans and (ii) incorporates market-based funding with its equilibrium price reflecting individual-bank specific default premium. Using the model calibrated to Canada, we analyze quantitatively to what extent systematic responses of capital regulations to aggregate states of the economy help smooth the supply of loans over time as well as its implications on the stability of banks.
		PRESENTER Tamon Takamura Bank of Canada
		RESEARCH FIELDS Macro and Monetary Economics Business-Cycle Theory Computational Economics
		DATE: 21 May 2018 (Monday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903