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Bank Capital Regulation, Economic Stability, and Monetary Policy: What Does the Academic Literature Tell Us?

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Abstract

This paper surveys academic research exploring the macroeconomic and monetary policy implications of the Basel I and Basel II systems of risk-based capital requirements. This research indicates that regulatory tightening of capital ratios can generate aggregate shocks, that capital regulation can enhance the procyclicality already inherent in banking, and that capital requirements can influence macroeconomic outcomes and alter the monetary policy transmission mechanism. The paper offers suggestions for future avenues of research on the interplay between bank capital regulation, the economy, and monetary policymaking.

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Authors and Affiliations

  1. Hankamer School of Business, Baylor University, One Bear Place #98003, Waco, TX, 76798, USA

    David D. VanHoose

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  1. David D. VanHoose
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Correspondence to David D. VanHoose.

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Although any errors are my own, I received very helpful comments on earlier versions from Kenneth Kopecky, John Pattison, and Jack Tatom. I am grateful for research support from Networks Financial Institute.

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VanHoose, D.D. Bank Capital Regulation, Economic Stability, and Monetary Policy: What Does the Academic Literature Tell Us?. Atl Econ J 36, 1–14 (2008). https://doi.org/10.1007/s11293-007-9100-z

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  • DOI: https://doi.org/10.1007/s11293-007-9100-z

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