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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Upcoming Seminars
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Izak Odendaal: Old Mutual Wealth Chief Investment Strategist
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27 Jun 2025 Another setback for the GNU, but oil markets breathe a little easierThis week was marked by heightened tensions both domestically and internationally. At home, friction intensified between the two largest parties in the Government of National Unity (GNU), the ANC and the DA, following the firing of one of the DA's deputy ministers. Internationally, the US conducted airstrikes on three Iranian nuclear facilities using...
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