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The Economy‐wide Impacts of a Rise in the Capital Adequacy Ratios of Australian Banks
Author(s) -
Giesecke James A.,
Dixon Peter B.,
Rimmer Maureen T.
Publication year - 2017
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/1475-4932.12341
Subject(s) - computable general equilibrium , economics , leverage (statistics) , capital requirement , equity (law) , equity capital , financial crisis , real economy , capital adequacy ratio , monetary economics , general equilibrium theory , finance , financial system , business , macroeconomics , capital market , profit (economics) , microeconomics , machine learning , computer science , political science , law
Regulators are requiring banks to raise additional equity to finance their activities. The benefits are understood in terms of reducing the risks of another financial crisis. But there are potential costs, including the potential for unanticipated macroeconomic impacts as banks reduce leverage. We use a financial computable general equilibrium model, containing disaggregated treatment of financial agents, to explore the economy‐wide consequences of an increase in bank capital adequacy ratios. We find that the macroeconomic consequences are small.