A Model of Bank Capital, Lending and the Macroeconomy: Basel I versus Basel II

Abstract

The revised framework for capital regulation of internationally active banks (known as Basel II) introduces risk-based capital requirements. This paper analyses the relationship between bank capital, lending and macroeconomic activity under the new capital adequacy regime. It extends a model of the bank-capital channel of monetary policy -developed by Chami and Cosimano -by introducing capital constraints à la Basel II. The results suggest that bank capital is likely to be less variable under the new capital adequacy regime than under the current one, which is characterised by invariant asset risk-weights. However, bank lending is likely to be more responsive to macroeconomic shocks.

Banks’ procyclical behavior: Does provisioning matter?

“…The effects of capital requirements on bank lending do not only operate through changes in monetary policy. Capital requirements are also relevant in explaining the impact of macroeconomic conditions and changes in banking regulation on bank lending (Furfine, 2001;Zicchino, 2005).…”

The cyclical effects of the Basel II capital requirements

“…Some conclude that the cyclical behavior of capital buffers will further amplify the inherent cyclicality of Basel II caused by the risk sensitivity of capital charges. Others, however, point out that capital buffers will actually mitigate the cyclical effects of Basel II (Jokivuolle and Peura, 2004;Zicchino, 2005).…”

“…An application of this model to Basel II can be found inZicchino (2005). These models do not, however, model the costs of failure on regulatory requirements.…”

Les Déterminants De La Demande De Crédit Bancaire Au Cameroun System

“…Van den Heuvel (2007) par exemple développe un canal du capital bancaire dans lequel, la contrainte réglementaire en fonds propres réduit la demande par le biais de l'offre de crédit sur le marché bancaire. Par ailleurs, Zicchino (2006) montre aussi que la réglementation sur les fonds propres ne conduit pas simplement à amplifier les chocs de politique monétaire, mais plus généralement les chocs affectant les conditions macroéconomiques, et dont celle de demande de crédit bancaire.…”