Poll: Dynamic Bank Capital Requirement
Posted: Thu Nov 28, 2019 7:59 am
Please let us know if you want to see the following suggestion by user LT3001 get implemented:
Instead of having a fixed required 8% capital ratio, you could make this dynamic, just like the central bank interest rate model. You could have policy hawks and doves, which increase and decrease minimum capital ratios. Hawks would increase them, and in particular increase them after a crisis, which will require banks reduce leverage (and hurt the economy), while doves would decrease them to stimulate the economy. This would amplify booms and busts like in the real economy. You should also have announced increases/decreases implemented with a lag (perhaps 6-12 mths).
To see the original user post: http://www.capitalism2.com/forum/viewto ... 044#p29050
Instead of having a fixed required 8% capital ratio, you could make this dynamic, just like the central bank interest rate model. You could have policy hawks and doves, which increase and decrease minimum capital ratios. Hawks would increase them, and in particular increase them after a crisis, which will require banks reduce leverage (and hurt the economy), while doves would decrease them to stimulate the economy. This would amplify booms and busts like in the real economy. You should also have announced increases/decreases implemented with a lag (perhaps 6-12 mths).
To see the original user post: http://www.capitalism2.com/forum/viewto ... 044#p29050