Abstract

We propose a multi-agent approach to compare the effectiveness of macro-prudential capital requirements, where banks are embedded in an artificial macroeconomy. Capital requirements are derived from systemic- risk metrics that reflect both the vulnerability or impact of financial in- stitutions. Our objective is to explore how systemic-risk measures could be translated in capital requirements and test them in a comprehensive framework. Based on our counterfactual scenarios, we find that macro- prudential capital requirements can mitigate systemic risk, but there is a trade-off between market- and balance-sheet-based policies in terms of banks’ losses and credit supply.

Publication Type:	Monograph (Discussion Paper)
Additional Information:	Copyright 2019, the authors.
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Departments:	School of Policy & Global Affairs > Economics School of Policy & Global Affairs > Economics > Discussion Paper Series

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