Bank Regulation under Fire Sale Externalities

• 成果类型: Article
• 署名作者: Kara, Gazi I.; Ozsoy, S. Mehmet
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors; Ozyegin University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhz117
• 发表日期: 2020
• 页码: 2554
• 关键词: monetary-policy; Systemic risk; liquidity; equilibrium; illiquidity; INVESTMENT

摘要

We examine the optimal design of and interaction between capital and liquidity regulations. Banks, not internalizing fire sale externalities, overinvest in risky assets and underinvest in liquid assets in the competitive equilibrium. Capital requirements can alleviate the inefficiency, but banks respond by decreasing their liquidity ratios. When capital requirements are the only available tool, the regulator tightens them to offset banks' lower liquidity ratios, leading to fewer risky assets and less liquidity compared with the second best. Macroprudential liquidity requirements that complement capital regulations implement the second best, improve financial stability, and allow for more investment in risky assets.