Macro Prudential Policies from a Micro Prudential Angle

Macro Prudential Policies from a Micro Prudential Angle

The standard macro(prudential) models focus on externalities and treat all prudential instruments as alternative, but equivalent, forms of Pigouvian taxes. This paper explicitly models individual banks' risk choices and shows that different pr...

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Bibliographic Details
Main Authors:	Cordella, Tito, Pienknagura, Samuel
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	AGENCY PROBLEMS BANK BAILOUTS BANK DIRECTOR BANK LIQUIDITY BANK RISK BANK RISK TAKING BANK RISK-TAKING BANKS BORROWING BUSINESS CYCLE BUSINESS CYCLES CAPITAL FLOWS CAPITAL REGULATION CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CAPITAL STRUCTURE COST OF CAPITAL CREDIT INCREASES DEBT DEFAULT RISK DEMAND CURVE DEMAND DEPOSITS DEMAND FOR CREDIT DEPOSIT DEPOSITORS DEVELOPMENT BANK DEVELOPMENT ECONOMICS DEVELOPMENT POLICY ECONOMIC PERFORMANCE ECONOMIC THEORY EUROPEAN CENTRAL BANK EXCESSIVE RISK EXTERNAL LIABILITIES EXTERNALITIES EXTERNALITY FINANCIAL CRISES FINANCIAL FRAGILITY FINANCIAL INNOVATION FINANCIAL INTERMEDIATION FINANCIAL REGULATION FORM OF COLLATERAL INSTRUMENT INTEREST RATE INTEREST RATES INTERNATIONAL BANK LEVELS OF RISK LEVERAGE LEVY LIABILITY LIABILITY STRUCTURE LIQUIDITY REQUIREMENTS LIQUIDITY RISK LOAN MACROECONOMIC MODELS MARKET POWER MINIMUM CAPITAL REQUIREMENT MINIMUM CAPITAL REQUIREMENTS MONETARY POLICY MORAL HAZARD NEGATIVE EXTERNALITIES OBLIGATIONS TO DEPOSITORS POLITICAL ECONOMY PORTFOLIO PORTFOLIOS PRUDENTIAL REGULATION REGULATORY FRAMEWORK RESERVE RESERVE REQUIREMENTS RETURNS RISK CHOICES RISK TAKING RISK-TAKING INCENTIVES SYSTEMIC RISK TAX TAX ON DEPOSITS TAXATION macroprudential regulation microprudential regulation
Online Access:	http://documents.worldbank.org/curated/en/2013/12/18634314/macro-prudential-policies-micro-prudential-angle http://hdl.handle.net/10986/16937

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Summary:	The standard macro(prudential) models focus on externalities and treat all prudential instruments as alternative, but equivalent, forms of Pigouvian taxes. This paper explicitly models individual banks' risk choices and shows that different prudential instruments affect banks' risk-taking incentives differently. Thus, conflicts may arise between the micro and macro prudential stance.

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