Credit allocation, capital requirements and output

Esa Jokivuolle, Ilkka Kiema, Timo Vesala

Forskningsoutput: ArbetsdokumentDiskussionsartiklarProfessionell

Sammanfattning

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.
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.
Originalspråkengelska
UtgivningsortHelsinki
FörlagBank 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

Vetenskapsgrenar

  • 511 Nationalekonomi

Citera det här

Jokivuolle, E., Kiema, I., & Vesala, T. (2010). Credit allocation, capital requirements and output. (Bank of Finland Research Discussion Papers; Nr. 17/2010). Helsinki: Bank of Finland.
Jokivuolle, Esa ; Kiema, Ilkka ; Vesala, Timo. / Credit allocation, capital requirements and output. Helsinki : Bank of Finland, 2010. (Bank of Finland Research Discussion Papers; 17/2010).
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Jokivuolle, E, Kiema, I & Vesala, T 2010 'Credit allocation, capital requirements and output' Bank of Finland Research Discussion Papers, nr. 17/2010, Bank of Finland, Helsinki.

Credit allocation, capital requirements and output. / Jokivuolle, Esa; Kiema, Ilkka; Vesala, Timo.

Helsinki : Bank of Finland, 2010. (Bank of Finland Research Discussion Papers; Nr. 17/2010).

Forskningsoutput: ArbetsdokumentDiskussionsartiklarProfessionell

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KW - 511 Economics

KW - pankkitoiminta

KW - luotot

KW - riskit

KW - tuotanto

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KW - suhdanteet

KW - vakavaraisuus

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Jokivuolle E, Kiema I, Vesala T. Credit allocation, capital requirements and output. Helsinki: Bank of Finland. 2010. (Bank of Finland Research Discussion Papers; 17/2010).