Regulatory Alerts2022-05-17
Modelling the costs and benefits of higher capital ratios
The Reserve Bank of New Zealand reproduces and extends the Harrison model to analyze the costs and benefits of higher bank capital ratios. The document corrects documentation errors in previous work and calculates benefits from avoided recessions and bailout costs alongside costs from reduced GDP and lending. It employs the Basel capital equation to determine survival probabilities and applies utility corrections to account for risk aversion in the economic impact assessment.
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