MYTV, Tok Bompleur

A central policy question is how to set capital requirements for banks. The author develops a model to study the effects of capital requirements on the economy and to determine the optimal level. Increasing the requirement to 14 percent from the current status quo leads to a reduction in bank debt, an increase in bank lending, and a reduction in the volatility of bank income. Indeed, policy makers and regulators have been seriously considering raising the capital requirement to 11.5 percent and thus closer to the optimal requirement implied by the quantitative model in this paper. Read More

AD4