Macroeconomic Shocks and Banking Regulation

Mathias Dewatripont*, Jean Tirole

*Corresponding author for this work

Research output: Contribution to journalArticle

23 Scopus citations

Abstract

The recent crisis has brought to the fore the cyclical properties of banking regulation. Countercyclical buffers and enhanced capital requirements meant to stabilize banks' balance sheets across the cycle are not costless, and a delicate balance needs to be reached between providing incentives to generate value and discouraging excessive risk taking. The paper develops a model in which, in contrast with Modigliani-Miller, outside equity and capital requirements matter. It analyses banking regulation in the presence of macroeconomic shocks and studies the desirability of self-insurance mechanisms such as countercyclical capital buffers or dynamic provisioning, as well as "macro-hedges" such as CoCos and capital insurance.

Original languageEnglish (US)
Pages (from-to)237-254
Number of pages18
JournalJournal of Money, Credit and Banking
Volume44
Issue numberSUPPL. 2
DOIs
StatePublished - Dec 1 2012

Keywords

  • Banking regulation
  • Countercyclical capital requirements
  • Macroeconomic shocks

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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