Essays on the Financial Crisis and Macroprudential Regulation

Released on by Linda Kirschner
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  • Essays on the Financial Crisis and Macroprudential Regulation Book Detail

  • Author : Linda Kirschner
  • Release Date : 2020
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  • File Size : 36,36 MB
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Essays on the Financial Crisis and Macroprudential Regulation by Linda Kirschner PDF Summary

Book Description: The financial crisis was, at its core, a banking crisis, which affected the real economy through a rapid reduction in credit supply. This dissertation combines three essays on policy changes after the financial crisis. The first two chapters focus on regulatory rules proposed to avoid future credit crunches and the resulting contractionary effects on the real economy. In the first chapter, I introduce two different proposals for countercyclical capital buffers and compare their effectiveness in reducing macroeconomic fluctuations. The Basel III capital buffer is attuned to early warning signals of systemic risk, while dynamic loan loss provisions are set aside to cover expected losses. I show that the systemic risk buffer is more effective in reducing macroeconomic volatility in times of excessive lending booms and crunches. The second paper examines the effectiveness of the Basel III buffer more closely by considering different shocks to the economy and the banking sector. At the heart of the recent banking crisis were bank's difficulties to receive both equity and debt funding. I show that the macroeconomic implications of financial shocks are particularly serious if banks have only restricted access to deposits. These disturbances on the supply side of credit have more distressing consequences than comparable shocks to the credit demand side. Interestingly, I find that the Basel III buffer is most effective in dealing with these supply side shocks. The third chapter analyses the Eurozone crisis as a triple crisis of fiscal solvency, banking sector instability, and stagnant growth. Given negative feedback loops, and starting from bad initial conditions, Italy remains vulnerable to adverse economic shocks originating at home and abroad. Furthermore, we contrast the two cases of continued membership or exit from the Eurozone and find exiting will severely delay Italy's economic recovery at least in the long run.

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The financial crisis that began in 2007 brought much of the global economy to its knees and nearly triggered another Great Depression. The financial storm gradu