This paper analyzes the cyclical effects of bank capital requirements in a simple model with credit market … imperfections. Lending rates are set as a premium over the cost of borrowing from the central bank, with the premium itself … introduced through a signaling effect of capital buffers on the cost of bank deposits. The macroeconomic effects of various …

The business cycle effects of bank capital regulatory regimes are examined in a New Keynesian model with credit market … imperfections and a cost channel of monetary policy. Key features of the model are that bank capital increases incentives for banks …