Macroeconomic Shocks and Banking Regulation

Mathias Dewatripont*, Jean Tirole

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    28 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 2012

    Keywords

    • Banking regulation
    • Countercyclical capital requirements
    • Macroeconomic shocks

    ASJC Scopus subject areas

    • Accounting
    • Finance
    • Economics and Econometrics

    Fingerprint

    Dive into the research topics of 'Macroeconomic Shocks and Banking Regulation'. Together they form a unique fingerprint.

    Cite this