Financial system regulation and policies

• Banking Regulation and Market Making

  Staff Working Paper 2017-7 David Cimon, Corey Garriott

  We model how securities dealers respond to regulations on leverage, position and liquidity such as those imposed by the Basel III framework. We show that while asset prices exhibit greater price impact, bid-ask spreads do not change and trading volumes may even increase.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): G, G1, G14, G2, G20, L, L1, L10

• Optimal Capital Regulation

  Staff Working Paper 2017-6 Stéphane Moyen, Josef Schroth

  We study constrained-efficient bank capital regulation in a model with market-imposed equity requirements. Banks hold equity buffers to insure against sudden loss of access to funding. However, in the model, banks choose to only partially self-insure because equity is privately costly.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): E, E1, E13, E3, E32, E4, E44