We examine, conditional on structural shocks, the macroeconomic performance of different countercyclical capital buffer (CCyB) rules in small open economy estimated medium-scale Dynamic Stochastic General Equilibrium (DSGE) model. We find that rules based on the credit gap create a trade-off between the stabilization of fluctuations originating in the housing market and fluctuations caused by foreign demand shocks. The trade-off disappears if the regulator responds to house prices instead. It turns out that the welfare-maximising simple CCyB rule implies responding to house prices only and not to the credit gap. Such rule also leads to significant welfare gains compared to the no CCyB case.

Restrictive policies aimed at reducing the likelihood of bank failure during recessions tend to increase the probability of a credit crunch. In this paper we infer governments' policy responses to this dilemma by studying the cyclical behavior of bank capital in 1369 banks from 28 OECD countries during the period 1992–98. We find significant differences across countries. In the US and Japan, bank capital is counter-cyclical, that is, the typical bank strengthens its capital base during periods of weak economic activity. In the other countries, there is no relationship between the level of macroeconomic activity and bank capital. From these findings we infer that severe banking crises in the US and Japan may have made policymakers there more vigilant towards “unhealthy” banks, even when this implies an increase in the risk of a credit crunch. In countries without such crisis experience, policymakers seem to be less concerned about future banking crises. Our results suggest that the strong push by the US for the 1988 Basle Accord may have been a reflection of this increased sensitivity. They also suggest that, to the extent business cycles do not develop in synchronicity across countries and policymakers respond differently to the banking crisis-credit crunch dilemma, current reforms of the Basle Accord, which are designed to tighten regulatory requirements, may encounter difficulties.

This study demonstrates how expectation errors in a credit market generate economic fluctuations. To this end, we employ simulation analysis using a dynamic stochastic general equilibrium model. Our model includes two building blocks that are not included in the standard models: the banking sector and matching friction in the labor market. By introducing the banking sector, we can confirm that if economic agents fallaciously expect a rise in future asset prices, such expectations will cause an economic boom and bust. The variation of this fluctuation is quite large and the recession short-lived, but these drawbacks can be avoided by adding matching friction.

Le risque d'insolvabilité d'une institution financière résulte de ses choix d'investissement, de financement et de capitalisation. Cet article propose une application à l'industrie bancaire française d'une méthodologie développée par Hughes et Moon (1996) permettant une estimation jointe de l'espérance de profit et de sa variance à partir d'une fonction de dépense dérivée du Système Presque Idéal de Demande. En considérant le risque comme l'input unique du processus de production du profit, on construit une frontière rendement risque de l'industrie bancaire à partir de laquelle sont calculés des scores d'efficience selon la méthode DEA. Bien que le risque de l'actif apparaisse comme une fonction croissante de la capitalisation, le risque d'insolvabilité est décroissant dans la capitalisation. L'effet de la taille se traduit essentiellement par un risque de crédit accru pour les grandes banques relativement spécialisées sur ce segment d'activité.