Why Do We Need Countercyclical Capital Requirements?

Jokivuolle, Esa; Kiema, Ilkka; Vesala, Timo

doi:10.1007/s10693-013-0169-z

Cited by 8 publications

(4 citation statements)

References 13 publications

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“…The effect of bank capital on lending received more scrutiny with the advent of Basel I (Haubrich and Wachtel (1993), Berger and Udell (1994)), and more recent worries about regulatory-induced cyclicality are addressed in Gordy and Howells (2006), and Goodhart et al (2004), with post-crisis modelling efforts by Repullo and Suarez (2013), among others. Representative papers calibrating the optimal cyclical properties of capital regulations are Estrella (2004), Begenau (2013), Jokivuolle et al (2014), and Davydiuk (2017). Flannery and Rangan (2008) and Rajan (2009), conversely, emphasize the market forces driving observed levels of bank capital.…”

Section: Introductionmentioning

confidence: 99%

How Cyclical Is Bank Capital?

Haubrich

2020

J Financ Serv Res

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Using annual data since 1834 and quarterly data since 1959, I fi nd a negative correlation between output and current and lagged values of the bank capital ratio, but a positive correlation with leading values, although except for the period since 1996 the numbers are mostly small and usually insignifi cant. The most signifi cant correlations tend to refl ect movements in bank assets, rather than capital itself, and although the pattern of aggregate correlations matches those of large banks, small banks show a different pattern, with strongly procyclical capital ratios (counter-cyclical leverage).

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Section: Introductionmentioning

confidence: 99%

How Cyclical Is Bank Capital?

Haubrich

2020

J Financ Serv Res

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“…The effect of bank capital on lending received more scrutiny with the advent of Basel I (Haubrich and Wachtel (1993), Berger and Udell (1994)), and more recent worries about regulatory-induced cyclicality are addressed in Gordy and Howells (2006), and Goodhart et al (2004), with post-crisis modelling efforts by Repullo and Suarez (2013), among others. Representative papers calibrating the optimal cyclical properties of capital regulations are Estrella (2004), Begenau (2013), Jokivuolle et al (2014), andDavydiuk (2017). Flannery and Rangan (2008) and Rajan (2009), conversely, emphasize the market forces driving observed levels of bank capital.…”

Section: Introductionmentioning

confidence: 99%

How Cyclical Is Bank Capital?

Haubrich

2018

Working Paper (Federal Reserve Bank of Cleveland)

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“…A recent strand of literature has attempted to explain inefficiencies in aggregate investment by exploiting an adverse selection framework. Eisfeldt (2004), House (2006), Morris and Shin (2012), Takalo and Toivanen (2012), Jokivuolle et al (2014) and Bigio (2015) look at investment in entrepreneurial projects, or the financing of capital production, in general equilibrium when the financing is affected by asymmetric information on project quality. On the supply side, Dell' Ariccia and Marquez (2006) find that increasing asymmetric information across lenders can lead to a tightening of lending standards, as lenders screen loan applicants better.…”

Section: Introductionmentioning

confidence: 99%

House Prices, Lending Standards, and the Macroeconomy

Silvo

2017

SSRN Journal

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I study the link between house prices, lending standards, and aggregate over-investment in housing. I develop a model of the housing market where the credit market is affected by asymmetric information. Selection is towards less creditworthy borrowers. Asymmetric information coupled with deadweight costs of default can create endogenous boom-bust cycles in house prices. I show that lending standards are loose and the incentives for lessthan-creditworthy borrowers to apply for a loan are particularly strong, first, when future house values are expected to be high, which leads to high leverage of borrowers; and second, when safe interest rates are low, which implies low costs of borrowing. However, there are strong non-linearities in the relationship between borrowing incentives and economic fundamentals. The results shed light on incentive mechanisms that can help explain the developments in the U.S. housing market in the early 2000s. They also imply that loose monetary policy can have a direct impact on the stability of the housing market through the cost of borrowing and the opportunity cost of housing investment.

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Why Do We Need Countercyclical Capital Requirements?

Cited by 8 publications

References 13 publications

How Cyclical Is Bank Capital?

How Cyclical Is Bank Capital?

How Cyclical Is Bank Capital?

House Prices, Lending Standards, and the Macroeconomy

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