Estimating the impact of changes in aggregate bank capital requirements during an upswing
Joseph Noss, Priscilla Toffano 06 April 2014
The impact of tighter regulatory capital requirements during an economic upswing is a key question in macroprudential policy. This column discusses research suggesting that an increase of 15 basis points in aggregate capital ratios of banks operating in the UK is associated with a median reduction of around 1.4% in the level of lending after 16 quarters. The impact on quarterly GDP growth is statistically insignificant, a result that is consistent with firms substituting away from bank credit and towards that supplied via bond markets.
The recent financial crisis and economic contraction that followed highlighted the crucial role that banks play in facilitating the extension of credit and enabling economic growth. This underlies the economic rationale for imposing regulations on the banking industry, including minimum capital requirements designed to mitigate risks banks would not otherwise account for in their behaviour.
regulations, bank regulation, banking, capital requirements, banks, BASEL III, credit, Macroprudential policy, bank capital
The future of securities regulation
Luigi Zingales 28 January 2009
In 1933, US securities regulations were introduced to restore trust in financial markets. Today, a new regulatory focus is needed to address the crisis of confidence. After reviewing the status of financial regulation, this column sketches policy proposals in three key areas of securities markets.
In the 75 years since the enactment of the US Securities Act, securities markets could not have changed more. Concerns that afflicted investors then – lack of transparency and market manipulation – are not at the forefront today, partly thanks to the success of 1930s legislation.
Two fundamental trends that alter the regulatory landscape
Also important are two trends that have dramatically altered securities markets.
financial integration, regulations, corporate governance, financial regulation
Regulating the safety and efficacy of prescription drugs
Tomas Philipson , Eric Sun 03 January 2008
From an economic perspective, two critical issues are the speed-safety tradeoff in drug approval and the overlap of regulation and product liability. Research on the US experience suggests that regulatory agencies have historically erred on the “safety” side of the speed-safety balance and there would be gains from better integration of government regulation and product liability laws.
Prescription drugs represent a large and rapidly growing share of health care expenditures – 15% in the US and 7.5% in Europe. While costly, research shows that drugs represent an enormous value to society; they both improve health1 and reduce medical costs.2
regulations, prescription drugs, pharmaceutical firms, speed-safety tradeoff
Which institutions matter for economic growth?
Liam Brunt 25 September 2007
Historical evidence from a natural experiment in South Africa suggests that changing particular institutions is really only tinkering at the economic margins. Establishing clear property rights, by contrast, facilitates almost all economic interactions and unleashes the full potential of the economy. Several developing economies – such as Vietnam and China – have recently been moving down this road, and history suggests that the economic gains are likely to be large.
It is obvious that a country’s political, legal, economic and social institutions will affect its rate of economic growth. However, it is much more difficult to identify exactly which institutions matter and exactly how they matter. This is an issue of some practical importance. Countries are free to redesign their institutions in order to improve their economic performance. But, unless they can pinpoint the beneficial aspects of particular institutions, the only option is to import wholesale the institutional structures of another, more economically successful country.
institutions, economic growth, laws, regulations