The impact of Basel III on money creation: A synthetic analysis

Wanting Xiong and Yougui Wang

No 2017-53, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Recent evidences provoke broad rethinking of the role of banks in money creation. The authors argue that apart from the reserve requirement, prudential regulations also play important roles in constraining the money supply. Specifically, they study three Basel III regulations and theoretically analyze their standalone and collective impacts. The authors find that 1) the money multiplier under Basel III is not constant but a decreasing function of the monetary base; 2) the determinants of the bank's money creation capacity are regulation-specific; 3) the effective binding regulation and the corresponding money multiplier vary across different economic states and bank balance sheet conditions.

Keywords: money creation; Basel III; liquidity coverage ratio; capital adequacy ratio; leverage ratio; money multiplier (search for similar items in EconPapers)
JEL-codes: E51 E60 G18 G28 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-acc, nep-cba, nep-mac, nep-mon, nep-pay and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201753

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