The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
The paper evaluates the impact of macroprudential capital regulation on bank capital, risk taking behaviour, and solvency. The identification relies on an exogenous policy change in bank-level capital requirements across systemically important banks in Europe. A one percentage point hike in capital requirements leads to an average CET1 capital level increase of 13 percent improving their loss absorption capacity. The paper does not find evidence of costs due to reduction in assets. The paper documents robust evidence on the existence of substitution effects toward riskier assets. Consistently with arguments on agency costs and gambling for resurrection, the risk taking behavior is predominantly driven by large and less profitable banks. Large wholesale funded banks show less risk taking. Large banks relying on internal ratings based approach show also lower risk taking supporting the argument on their competitive advantage. In terms of overall impact on solvency, the higher risk taking crowds-out the positive effect of increased capital. JEL Classification: E51, G21, O52 a competitive advantage for IRB banks since lower risk weights imply a lower cost of compliance to higher capital requirements.In order to estimate the overall impact on banks' solvency of the two opposing effectsi.e. higher resilience achieved with increased capital versus lower resilience arising from more risk-taking -the study estimates the impact of the policy change on probabilities of default extrapolated from credit ratings. Results indicate that the positive effect of accumulating more equity capital is counterbalanced by the negative substitution effect toward more riskier assets, the net average effect on the solvency of EU banks is thus null.The countervailing effect of risk taking on solvency raises the attention to the non-intended consequences of regulatory action, the regulatory task is not a simple one, any policy change requires a comprehensive assessment of hidden incentives behind regulatory action.
This paper evaluates the Chinese minimum wage policy for the period 2002-2009 in terms of its impact on low income household consumption. Using a representative household panel, we find support for the permanent income hypothesis, whereby unanticipated and persistent income increases due to minimum wage policy change are fully spent. The impact is driven by households with at least one child. We infer significant positive welfare effects for low income households based on expenditure increases concentrated in health care and education, whereas a negative employment effect of higher minimum wage cannot be confirmed.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.