Regulatory Alerts2022-05-17
A model to calculate the net benefits of changing bank capital requirements
The Reserve Bank of New Zealand issued this document to detail the V2 model, a re-implementation of the Harrison model used to estimate the costs and benefits of regulatory capital ratios for banks. The model calculates net national welfare changes by balancing the benefits of reduced systemic crisis risks against the costs of higher bank funding and reduced lending. It employs the Basel equation to determine survival probabilities and applies a utility adjustment to value crisis-related GDP losses and bailout costs more highly than non-crisis economic impacts.
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