Micro and Macroprudential Perspectives of Banks’ Surveillance: Implications for the Trade-Off between Benefits and Costs of Regulation

11 Pages Posted: 19 Jul 2016

See all articles by Rainer Masera

Rainer Masera

Università degli Studi Guglielmo Marconi

Date Written: July 18, 2016

Abstract

The traditional approach to bank regulation, and notably to capital requirements, is based on microprudential cost-benefit analyses. The emphasis is, therefore, on rules that aim at ensuring that each and every banking firm is safe and sound. This note examines possible extensions of the approach: to allow for fallacies of composition of the micro dimension, to explore the macroprudential implications of capital regulatory burdens and to take into account the regulatory implications of complex systems. In particular, capital requirements may blunt monetary and credit policy processes. In any event, costs and benefits must be assessed under different states of the world. The trade-off between benefits and costs is specifically considered during prolonged periods of perturbed economic conditions and for banks of different size.

Keywords: microprudential capital requirements, macroprudential dimension, complex systems, cost-benefit analyses of bank regulation

JEL Classification: D85, E61, G21, G28

Suggested Citation

Masera, Rainer, Micro and Macroprudential Perspectives of Banks’ Surveillance: Implications for the Trade-Off between Benefits and Costs of Regulation (July 18, 2016). Available at SSRN: https://ssrn.com/abstract=2811068 or http://dx.doi.org/10.2139/ssrn.2811068

Rainer Masera (Contact Author)

Università degli Studi Guglielmo Marconi ( email )

Via Plinio 44
Rome, Rome 00193
Italy
+39 06 377251 (Phone)

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