Abstract
New bank equity must come from somewhere. In general equilibrium, raising bank capital requirements means either that banks produce less short-term debt (as debt holders must become shareholders), or short-term debt is not reduced and the banking system acquires nonbank equity (as the shareholders in nonbanks become shareholders in banks). The welfare effects involve a trade-off because bank debt is special as it is used for transactions purposes, but more bank capital can reduce the chance of bank failure (producing welfare losses).
Original language | English (US) |
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Pages (from-to) | 5-37 |
Number of pages | 33 |
Journal | Journal of Money, Credit and Banking |
Volume | 49 |
Issue number | 1 |
DOIs | |
State | Published - Feb 1 2017 |
Bibliographical note
Publisher Copyright:© 2017 The Ohio State University
Keywords
- G21
- G28
- bank capital
- liquidity provision