Credit allocation, capital requirements and output

Esa Jokivuolle, Ilkka Kiema, Timo Vesala

Forskningsoutput: ArbetsdokumentDiskussionsartiklarProfessionell


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.
UtgivareBank of Finland
Antal sidor38
ISBN (tryckt)978-952-462-618-7
ISBN (elektroniskt)978-952-462-619-4
StatusPublicerad - 2010
MoE-publikationstypD4 Publicerad utvecklings- eller forskningsrapport eller studie


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