Report
Bank Capital and Real GDP Growth
Abstract: We study the relationship between bank capital ratios and the distribution of future real GDP growth. Growth in the aggregate bank capital ratio corresponds to a smaller left tail of GDP—smaller crisis probability—but at the cost of a smaller right tail of growth outcomes—smaller probability of exuberant growth. This trade-off persists at horizons of up to eight quarters, highlighting the long-range consequences of changes in bank capital. We show that the predictive information in bank capital ratio growth is over and above that contained in real credit growth, suggesting importance for bank capital beyond supplying credit to the nonfinancial sector. Our results suggest that coordination between macroprudential and monetary policy is crucial for supporting stable growth.
Keywords: capital ratios; growth-at-risk; quantile regressions; threshold regressions;
JEL Classification: E32; G21; C22;
Access Documents
File(s):
File format is application/pdf
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr950.pdf
Description: Full text
File(s):
File format is text/html
https://www.newyorkfed.org/research/staff_reports/sr950.html
Description: Summary
Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Staff Reports
Publication Date: 2020-11-01
Number: 950