Jochen Mankart
(Research Centre Deutsche Bundesbank)
will give a presentation on
Bank capital buffers in a dynamic model
Abstract :
We estimate a dynamic structural banking model to examine the interaction between risk-weighted capital adequacy and unweighted leverage requirements, their differential impact on bank lending, and equity bu§er accumulation in excess of regulatory minima. Tighter risk-weighted capital requirements reduce loan supply and lead to an endogenous fall in bank proÖtability, reducing bank incentives to accumulate equity bu§ers and, therefore, increasing the incidence of bank failure. Tighter leverage requirements, on the other hand, increase lending, preserve bank charter value and incentives to accumulate equity bu§ers, therefore leading to lower bank failure rates.
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