IMF Working Papers

Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking

By Gianni De Nicolo, Andrea Gamba, Marcella Lucchetta

March 1, 2012

Download PDF

Preview Citation

Format: Chicago

Gianni De Nicolo, Andrea Gamba, and Marcella Lucchetta. Capital Regulation, Liquidity Requirements and Taxation in a Dynamic Model of Banking, (USA: International Monetary Fund, 2012) accessed September 20, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the impact of bank regulation and taxation in a dynamic model with banks exposed to credit and liquidity risk. We find an inverted U-shaped relationship between capital requirements and bank lending, efficiency, and welfare, with their benefits turning into costs beyond a certain requirement threshold. By contrast, liquidity requirements reduce lending, efficiency and welfare significantly. The costs of high capital and liquidity requirements represent a lower bound on the benefits of these regulations in abating systemic risks. On taxation, corporate income taxes generate higher government revenues and entail lower efficiency and welfare costs than taxes on non-deposit liabilities. 

Subject: Bank regulation, Banking, Capital adequacy requirements, Financial institutions, Financial regulation and supervision, Liquidity requirements, Loans, Stocks

Keywords: Bank default, Bank efficiency, Bank Regulation, Bank regulation reform, Bank shareholder, Capital adequacy requirements, Capital requirement, Cash flow, Coverage ratio, Dynamic Banking Model, Earnings before taxes, Enterprise value, Equity capital, Fire sale, Liquidity requirements, Loans, Maturity transformation, Restructured bank, Stocks, Taxation, Unregulated bank, WP

Publication Details

  • Pages:

    53

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/072

  • Stock No:

    WPIEA2012072

  • ISBN:

    9781475502244

  • ISSN:

    1018-5941

You May Also Be Interested In...

Systemic Implications of Financial Inclusion

September 20, 2024

Satellite-Based Census of Residential Buildings: Application for Climate Risk Assessment

September 20, 2024

Zimbabwe: Technical Assistance Report-Financial Sector Stability Report Follow Up Technical Assistance on the Implementation of the Basel III Liquidity Framework

September 20, 2024

Bangladesh: Technical Assistance Report-Report on Residential Property Price Index (RPPI) Mission (May 19–27, 2024)

September 20, 2024