Basel Accord and Financial Intermediation: The Impact of Policy

35 Pages Posted: 5 Feb 2012

See all articles by Martin Berka

Martin Berka

School of Economics and Finance, Massey University; Open-economy macroeconomics programme, CAMA, ANU; Asian Bureau of Finance and Economic Research

Christian Zimmermann

Federal Reserve Bank of Saint Louis; IZA Institute of Labor Economics

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Date Written: January 31, 2012

Abstract

This paper studies loan activity in a context where banks must follow Basel Accord-type rules and acquire financing from households. Loan activity typically decreases when entrepreneurs’ investment returns decline, and we study which type of policy could revigorate an economy in a trough. We find that active monetary policy increases loan volume even when the economy is in good shape; introducing active capital requirement policy can be effective as well if it implies tightening of regulation in bad times. This is performed with an heterogeneous agent economy with occupational choice, financial intermediation and aggregate shocks to the distribution of entrepreneurial returns.

Keywords: bank capital channel, capital requirements, Basel Accord, occupational choice, bankruptcy, credit crunch

JEL Classification: E440, E220, G280, E580

Suggested Citation

Berka, Martin and Zimmermann, Christian, Basel Accord and Financial Intermediation: The Impact of Policy (January 31, 2012). CESifo Working Paper Series No. 3724. Available at SSRN: https://ssrn.com/abstract=1998066

Martin Berka

School of Economics and Finance, Massey University ( email )

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Open-economy macroeconomics programme, CAMA, ANU

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

HOME PAGE: http://cama.crawford.anu.edu.au/programs-and-projects/open-economy-macroeconomics-program

Asian Bureau of Finance and Economic Research

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Christian Zimmermann (Contact Author)

Federal Reserve Bank of Saint Louis ( email )

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United States

IZA Institute of Labor Economics

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Germany

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