Bank capital, liquidity and systemic risk


Eichberger, Jürgen ; Summer, Martin


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URL: http://ub-madoc.bib.uni-mannheim.de/2697
URN: urn:nbn:de:bsz:180-madoc-26978
Document Type: Working paper
Year of publication: 2004
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Classification: JEL: E44 G28 G21 ,
Subject headings (SWD): Eigenkapitalgrundsätze , Bankenliquidität , Insolvenz , Bank , Bankenkrise , Investition
Individual keywords (German): Bankinsolvenz
Abstract: We analyze the impact of capital adequacy regulation on bank insolvency and aggregate investment. We develop a model of the banking system that is characterized by the interaction of many heterogeneous banks with the real sector, interbank credit relations as a consequence of bank liquidity management and an insolvency mechanism. This allows us to study the impact of capital adequacy regulation on systemic risk. In particular we can analyze the impact of regulation on contagious defaults arising from mutual credit relations. We show that the impact of capital adequacy on systemic stability is ambiguous and that systemic risk might actually increase as a consequence of imposing capital constraints on banks. Furthermore we analyze the indirect consequences of capital adequacy regulation that are transmitted to the real economy by their impact on equilibrium interbank rates and thus the opportunity costs of liquidity within the banking system.
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Eichberger, Jürgen ; Summer, Martin (2004) Bank capital, liquidity and systemic risk. Open Access [Working paper]
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