Banking, the Macroeconomy and Capital Requirements

Main content

Bank equity capital requirements need to fulfill at least three objectives. They should curb excessive risk-taking, they should guarantee that equity capital can act as a buffer against negative shocks, and they should allow for supervisory intervention before banks become insolvent. The risk-sensitive capital requirements of Basel II and Basel III suffer from a variety of shortcomings with regard to these objectives.

We introduce a new form of capital requirements: banking-on-the-average rules. Under these rules, a bank required level of equity capital is monotonically increasing in the realized equity capital of its peers. In particular, we are concerned with the following issues:

  • How do banking-on-the-average rules work?
  • Can banking-on-the-average rules lower the likelihood of banking crises? Can such rules moderate booms and busts?
  • How can capital requirements be justified?
  • How should bank capital requirements be combined with supervisory intervention and bank closure policies?

Furthermore, we examine the interrelations between financial institutions and the macroeconomy in general equilibrium models. We investigate consequences for banking regulation. In particular, we are concerned with the following issues:

  • How can financial intermediaries and financial contract competition be embedded in macroeconomic models?
  • How can banking regulation be rationalized in general equilibrium models?

Columns / Policy Briefs

Publications

  • Taking Banks to Solow, IEA Series, Contemporary Issues in Macroeconomics, 2014, 176-198.
    (Hans Gersbach, Jean-Charles Rochet and Martin Scheffel)
    Working Paper Version (PDF, 203 KB)
  • The Macroeconomics of Modigliani-Miller, Journal of Economic Theory, 157, 2015, 1081-1113.
    (Hans Gersbach, Hans Haller and Jürg Müller)
  • Bank Capital and the Optimal Capital Structure of an Economy, European Economic Review, 64, 2013, 241-255.
    (Hans Gersbach)
    Working Paper Version
  • Aggregate Investment Externalities and Macroprudential Regulation, Journal of Money, Credit, and Banking, 44, 2012, 73-109.
    (Hans Gersbach and Jean-Charles Rochet)
    Working Paper Version

Working Papers

Team Members

Cooperation Partners

 

 
 
Page URL: http://www.mip.ethz.ch/research/bankingandfinancialstab/banking.html
Sat Jul 22 18:31:20 CEST 2017
© 2017 Eidgenössische Technische Hochschule Zürich