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SUMMARY:Financial Regulation in a Quantitative Model of the Modern Banking
  System
DTSTART:20160429T103000
DTEND:20160429T120000
DTSTAMP:20260921T115817Z
UID:cbccf1ab06b88f12fda22441411f7aea4002bb11532ce7cd86c3bd74
CATEGORIES:Conferences - Seminars
DESCRIPTION:Juliane BEGENAU (Harvard Business School)\nThis paper builds a
  quantitative general equilibrium model with commercial banks and shadow b
 anks to study the unintended consequences of capital requirements. In part
 icular\, we investigate how the shadow banking system responds to capital 
 regulation for traditional banks. A key feature of our model are defaultab
 le bank liabilities that provide liquidity services to households. The qua
 lity of the liquidity services provided by bank liabilities depends on the
 ir safety in case of default. Commercial bank debt is fully insured and th
 us provides full liquidity. However\, commercial banks do not internalize 
 the social costs of higher leverage in the form of greater bankruptcy loss
 es (moral hazard)\, and are subject to a regulatory capital requirement. I
 n contrast\, shadow bank liabilities are generally uninsured\, and their l
 iquidity is limited by their positive probability of default. Shadow banks
  endogenously limit their leverage as they internalize its costs. Tighteni
 ng the commercial banks' capital requirement from the status quo leads to 
 safer commercial banks and more shadow banking activity in the economy. Wh
 ile the safety of the nancial system increases\, it provides less liquidit
 y. Calibrating the model to data from the Financial Accounts of the U.S.\,
  the optimal\ncapital requirement is around 15%.
LOCATION:UNIL\, Extranef\, room 126 https://planete.unil.ch/plan/?local=EX
 T-126
STATUS:CONFIRMED
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