Macroprudential Banking Regulation: Does One Size Fit All?
The macroprudential regulatory framework of Basel III imposes the same minimum capital and liquidity requirements on all banks around the world to ensure global competitiveness of banks. Using an agent-based model of the fi nancial system, we fi nd that this is not a robust framework to achieve (...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
University of Warsaw
2014-05-01
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| Series: | Journal of Banking and Financial Economics |
| Subjects: | |
| Online Access: | https://press.wz.uw.edu.pl/cgi/viewcontent.cgi?article=1100&context=jbfe |
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| Summary: | The macroprudential regulatory framework of Basel III imposes the same minimum capital and
liquidity requirements on all banks around the world to ensure global competitiveness of banks.
Using an agent-based model of the fi nancial system, we fi nd that this is not a robust framework to
achieve (inter)national fi nancial stability, because effi cient regulation has to embrace the economic
structure and behaviour of fi nancial market participants, which differ from country to country.
Market-based fi nancial systems do not profi t from capital and liquidity regulations, but from a ban
on proprietary trading (Volcker rule). In homogeneous or bank-based fi nancial systems, the most
effective regulatory policy to ensure fi nancial stability depends on the stability measure used.
Irrespective of fi nancial system architecture, direct restrictions of banks’ investment portfolios
are more effective than indirect restrictions through capital, leverage and liquidity regulations.
Applying the model to the Swiss fi nancial system, we fi nd that increasing regulatory complexity
excessively has destabilizing effects. These results highlight for the fi rst time a necessary change
in the regulatory paradigm to ensure the effectiveness and effi ciency of fi nancial regulations with
regards to fostering the resilience of the fi nancial system. |
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| ISSN: | 2353-6845 |