Is Basel III counter-cyclical: The case of South Africa?
Stellenbosch Working Paper Series No. WP10/2018Publication date: June 2018
Author(s):
[protected email address] (Department of Economics, University of Stellenbosch)
This paper develops a dynamic general equilibrium model with banking and a macroprudential authority, and studies the extent to which the Basel III bank capital regulation promotes financial and macroeconomic stability in the context of South African economy. The decomposition analysis of the transition from Basel II to Basel III suggests that it is the counter-cyclical capital buffer that effectively mitigates the pro-cyclicality of its predecessor, while the impact of the conservative buffer is marginal. Basel III has a pronounced impact on the financial sector compared to the real sector and is more effective in mitigating fluctuations in financial and business cycles when the economy is hit by financial shocks. In contrast to the credit-to-GDP ratio, the optimal policy analysis suggests that the regulatory authority should adjust capital requirement to changes in credit and output when implementing the counter-cyclical buffer.
JEL Classification:E44, E47, E58, G28
Keywords:Bank capital regulations, Financial stability, Counter-cyclical capital buffer, DSGE
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26 Apr 2024The most anticipated data release of the week was yesterday's US GDP print, which created more turmoil than usual by not meeting expectations. Growth was much weaker than expected in Q1, while price pressure remained red hot. Meanwhile, the local data calendar was quiet, with a slight acceleration in factory gate inflation and a welcome uptick in the...
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