The Economy‐wide Impacts of a Rise in the Capital Adequacy Ratios of Australian Banks

Regulators are requiring banks to raise additional equity to finance their activities. The benefits are understood in terms of reducing the risks of another financial crisis. But there are potential costs, including the potential for unanticipated macroeconomic impacts as banks reduce leverage. We u...

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Bibliographic Details
Published in:The Economic record 2017-06, Vol.93 (S1), p.16-37
Main Authors: Giesecke, James A., Dixon, Peter B., Rimmer, Maureen T.
Format: Article
Language:English
Subjects:
Adequacy
Banks
Capital
Economic crisis
Equilibrium
Finance
Leverage
Macroeconomics
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Summary:Regulators are requiring banks to raise additional equity to finance their activities. The benefits are understood in terms of reducing the risks of another financial crisis. But there are potential costs, including the potential for unanticipated macroeconomic impacts as banks reduce leverage. We use a financial computable general equilibrium model, containing disaggregated treatment of financial agents, to explore the economy‐wide consequences of an increase in bank capital adequacy ratios. We find that the macroeconomic consequences are small.
ISSN:0013-0249
1475-4932
DOI:10.1111/1475-4932.12341