A Model of Bank Capital, Lending and the Macroeconomy: Basel I Versus Basel Ii

41 Pages Posted: 19 Oct 2005

See all articles by Lea Zicchino

Lea Zicchino

Prometeia SpA; Dipartimento di Analisi e Ricerca Economica, Prometeia

Multiple version iconThere are 2 versions of this paper

Date Written: August 2005

Abstract

The revised framework for capital regulation of internationally active banks (known as Basel II) introduces risk-based capital requirements. This paper analyses the relationship between bank capital, lending and macroeconomic activity under the new capital adequacy regime. It extends a model of the bank-capital channel of monetary policy - developed by Chami and Cosimano - by introducing capital constraints a la Basel II. The results suggest that bank capital is likely to be less variable under the new capital adequacy regime than under the current one, which is characterised by invariant asset risk-weights. However, bank lending is likely to be more responsive to macroeconomic shocks.

Keywords: Capital adequacy, regulation, bank lending, procyclicality

JEL Classification: E5, G2

Suggested Citation

Zicchino, Lea, A Model of Bank Capital, Lending and the Macroeconomy: Basel I Versus Basel Ii (August 2005). Bank of England Working Paper No. 270, Available at SSRN: https://ssrn.com/abstract=824729 or http://dx.doi.org/10.2139/ssrn.824729

Lea Zicchino (Contact Author)

Prometeia SpA ( email )

Viale G. Marconi 43
Bologna
Italy

HOME PAGE: http://www.prometeia.it

Dipartimento di Analisi e Ricerca Economica, Prometeia ( email )

Viale G. Marconi 43
Bologna
Italy

HOME PAGE: http://www.prometeia.it

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