Banks’ Precautionary Capital and Persistent Credit Crunches / Fabian Valencia.

Format:

Book

Government document

Author/Creator:

Valencia, Fabian.

Series:

IMF Working Papers; Working Paper ; No. 2008/248

IMF working paper ; WP/08/248

IMF Working Papers

Language:

English

Subjects (All):

Financial crises--United States--Econometric models.

Financial crises.

Bank capital--United States--Econometric models.

Bank capital.

Bank failures--United States--Econometric models.

Bank failures.

Credit--United States--Econometric models.

Credit.

Risk--United States--Econometric models.

Risk.

Physical Description:

1 online resource (37 p.)

Edition:

1st ed.

Place of Publication:

Washington, D.C. : International Monetary Fund, 2008.

Language Note:

English

Summary:

Periods of banking distress are often followed by sizable and long-lasting contractions in bank credit. They may be explained by a declined demand by financially impaired borrowers (the conventional financial accelerator) or by lower supply by capital-constrained banks, a "credit crunch". This paper develops a bank model to study credit crunches and their real effects. In this model, banks maintain a precautionary level of capital that serves as a smoothing mechanism to avert disruptions in the supply of credit when hit by small shocks. However, for larger shocks, highly persistent credit crunches may arise even when the impulse is a one time, non-serially correlated event. From a policy perspective, the model justifies the use of public funds to recapitalize banks following a significant deterioration in their capital position.

Contents:

Contents; I. Introduction; II. Banks and the Real Economy; III. The Model; A. The Loan Contract; B. The Bank's Optimization Problem; C. Solution; D. Risk and the Target Level of Solvency; IV. Quantitative Experiments; V. Bank Recapitalization; VI. Conclusions; Figures; 1. Bank Credit as Percentage of GDP, Selected Countries; 2. Optimal Policy Functions; 3. Target Level of Solvency; 4. Responses to a Negative Transitory Productivity Shock; 5. Responses to an Interest Rate Increase; 6. Responses to a Large Negative Shock, With and Without Recapitalization

7. Credit Crunch Severity and Bank Recapitalization Tables; 1. Bank's Sequence of Events; 2. Public Recapitalization Costs for Selected Crises Episodes; 3. Sensitivity Analysis to a 2-σ Productivity Shock; 4. Bank's Solvency Regions; Appendix; 8. Deposit Interest Rate; References

Notes:

Description based upon print version of record.

Includes bibliographical references.

Description based on online resource; title from PDF front page (ebrary, viewed February 26, 2014).

ISBN:

9786612841996

9781462358816

1462358810

9781452749075

1452749078

9781451871067

1451871066

9781282841994

1282841998

OCLC:

874177680