EBA欧洲银行-deBandt2C20Chahad-A-DSGE-model-to-assess-the-post-crisis-regulation-of-universal-banks-Presentation_41页_1mb

Summary of "A DSGE Model to Assess the Post Crisis Regulation of Universal Banks"

Core Content

This document presents a DSGE (Dynamic Stochastic General Equilibrium) model designed to analyze the macroeconomic effects of post-crisis regulatory reforms on universal banks, particularly focusing on the implications of Basel III regulations, the Volcker Rule, and the Liikanen proposal. The model incorporates heterogeneity among producers, a bond market structure, and a multi-period assets framework to capture the complexity of financial regulations and their interactions with the real economy.

Main Findings

• Negative Impact on Output: The implementation of capital and liquidity requirements leads to a negative impact on economic output, primarily through two channels:

  • Private Consumption: The Liquidity Coverage Ratio (LCR) has a second-order effect on consumption, reducing it due to the constraints on liquidity.
  • Private Investment: Capital requirements trigger a sharp deleveraging process, which dampens investment and, consequently, output.

• Sovereign Bond Accumulation: The LCR regulation may lead banks to substitute business loans with sovereign bonds, resulting in an accumulation of sovereign bonds and a crowding-out effect on business investment.

• Regulatory Constraints Effects: Local regulators have some flexibility in influencing the effects of regulatory constraints, which can mitigate or amplify their impact on the economy.

• No Positive Externalities: There are no positive externalities from the simultaneous implementation of liquidity and solvency regulations; instead, they have compounded effects, which can be more detrimental.

• Progressive Implementation: A more gradual implementation of regulatory changes can lead to a shift in the balance between deleveraging and increasing profit margins, favoring the latter strategy.

Key Information

• The model is calibrated using euro area data and includes:

  • Heterogeneity among producers: Differentiating between corporate firms and SMEs.
  • A bond market structure: Based on Gilchrist et al. (2010).
  • Multi-period assets framework: Inspired by Benes and Lees (2010), allowing for geometric repayments of principal and interest.

• Regulatory Instruments:

  • Capital Requirements: A ratio of regulatory capital to weighted assets.
  • Liquidity Coverage Ratio (LCR): A measure requiring banks to hold enough high-quality liquid assets to cover potential cash outflows.

• Empirical Evidence:

  • There is limited evidence on the impact of liquidity requirements in existing literature, often due to the use of simplified liquidity constraints.
  • The simulation results in this model align with previous studies like Covas and Driscoll (2014), but within a richer framework.

Conclusion

• The new Basel III regulatory constraints are associated with a medium-term dampening of output.
• These constraints may increase the gap between small and large firms, with the accumulation of sovereign bonds playing a significant role.
• A long or loose implementation process may help mitigate these negative effects.

Related Literature

• The paper references several studies on macro-prudential regulations, including:

  • "Macroeconomic propagation under different regulatory regimes" by Darracq Pariès, Kok Sorensen, and Rodriguez-Palenzuel (2011)
  • "Credit and banking in a DSGE model of the euro area" by Gerali et al. (2010)
  • "The economic benefits and costs of stronger Capital and Liquidity regulations" by the Macroeconomic Assessment Group (2010)
  • "De Nicolo, Gamba and Luchetta (2014)" and "Adrian and Boyarchenko (2013)"

• These studies highlight the importance of regulatory frameworks in shaping macroeconomic outcomes, but they often simplify the definition of liquidity constraints, which this paper aims to address with a more detailed model.