Credit allocation, capital requirements and output

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Title: Credit allocation, capital requirements and output
Author: Jokivuolle, Esa ; Kiema, Ilkka ; Vesala, Timo
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
Series number: 17/2010
Year of publication: 2010
Publication date: 5.6.2010
Published in: Published in Journal of Financial Services Research, August 2014, Volume 46, Issue 1: 55-76 ;
Pages: 35 s.
Keywords: pankkitoiminta; luotot; riskit; tuotanto; pääomavaatimus; sääntely; suhdanteet; vakavaraisuus; Basel III
JEL: D41; D82; G14; G21; G28
Abstract: We show how banks excessive risk-taking, stemming from informational asymmetries in loan markets, can lead to an excessive output loss when a recession starts. Risk-based capital requirements can alleviate the output loss by reducing excessive risk-taking in normal times. Model simulations suggest that the differentiation of risk-weights in the Basel framework might be further increased in order to take full advantage of the allocational effects of capital requirements. Our analysis also provides a new rationale for the countercyclical elements of capital requirements. Keywords: bank regulation, Basel III, capital requirements, credit risk, crises, procyclicality JEL classification numbers: D41, D82, G14, G21, G28
Note: Tämä versio korvaa aiemman version, joka on Bank of Finland Discussion Paper 23/2009, "Credit allocation, capital requirements and procyclicality". Katso myös artikkeli Journal of financial services research 2013.

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