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- W2124985618 abstract "We develop a model of banking industry dynamics to study the quantitative impact of capital requirements on bank risk taking, commercial bank failure, and market structure. We propose a market structure where big, dominant banks interact with small, competitive fringe banks. Banks accumulate securities like Treasury bills and undertake short-term borrowing when there are cash flow shortfalls. A nontrivial size distribution of banks arises out of endogenous entry and exit, as well as banks’ buffer stocks of securities. We test the model using business cycle properties and the bank lending channel across banks of different sizes studied by Kashyap and Stein (2000). We find that a rise in capital requirements from 4% to 6% leads to a substantial reduction in exit rates of small banks and a more concentrated industry. Aggregate loan supply falls and interest rates rise by 50 basis points. The lower exit rate causes the tax/output rate necessary to fund deposit insurance to drop in half. Higher interest rates, however, induce higher loan delinquencies as well as a lower level of intermediated output." @default.
- W2124985618 created "2016-06-24" @default.
- W2124985618 creator A5006386333 @default.
- W2124985618 date "2019-01-01" @default.
- W2124985618 modified "2023-09-29" @default.
- W2124985618 title "Capital Requirements in a Quantitative Model of Banking Industry Dynamics" @default.
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- W2124985618 doi "https://doi.org/10.3386/w25424" @default.
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