Rafael Repullo - Academia.edu (original) (raw)
Papers by Rafael Repullo
Social Science Research Network, 2019
Ensayos Sobre Economia Y Politica Economica Homenaje a Julio Segura 2013 Isbn 978 84 940433 5 2 Pags 13 17, 2013
Economia Y Economistas Espanoles Vol 8 2004 Isbn 84 8109 281 9 Pags 1027 1036, 2004
Economic Policy
Policy discussions on the recent financial crisis feature widespread calls to address the pro-cyc... more Policy discussions on the recent financial crisis feature widespread calls to address the pro-cyclical effects of regulation. The main concern is that the new risk-sensitive bank capital regulation (Basel II) may amplify business cycle fluctuations. This paper compares the leading alternative procedures that have been proposed to mitigate this problem. We estimate a model of the probabilities of default (PDs) of Spanish firms during the period 1987-2008, and use the estimated PDs to compute the corresponding series of Basel II capital requirements per unit of loans. These requirements move significantly along the business cycle, ranging from 7.6% (in 2006) to 11.9% (in 1993). The comparison of the different procedures is based on the criterion of minimizing the root mean square deviations of each adjusted series with respect to the Hodrick-Prescott trend of the original series. The results show that the best procedures are either to smooth the input of the Basel II formula by using ...
SSRN Electronic Journal, 2007
Journal of Financial Intermediation, 2004
This paper studies the strategic interaction between a bank whose deposits are randomly withdrawn... more This paper studies the strategic interaction between a bank whose deposits are randomly withdrawn and a lender of last resort (LLR) that bases its decision on supervisory informa-tion on the quality of the bank’s assets. The bank is subject to a capital requirement and chooses the liquidity buffer that it wants to hold and the risk of its loan portfolio. The equi-librium choice of risk is shown to be decreasing in the capital requirement and increasing in the interest rate charged by the LLR. Moreover, when the LLR does not charge penalty rates, the bank chooses the same level of risk and a smaller liquidity buffer than in the absence of an LLR. Thus, in contrast with the general view, the existence of an LLR does not increase the incentives to take risk, while penalty rates do. JEL Codes: E58, G21, G28. From their inception, central banks have assumed as one of their key responsibilities the provision of liquidity to banks unable to find it elsewhere. The classical doctrine on the ...
European Economic Review, 2000
I would like to thank Patrick Bolton, Douglas Gale, and Javier Suarez for their comments, and
ECB: Working Paper Series (Topic), 2018
We analyze the effect of bank capital requirements on the structure and risk of a financial syste... more We analyze the effect of bank capital requirements on the structure and risk of a financial system where markets, regulated banks, and shadow banks coexist. Banks face a moral hazard problem in screening entrepreneurs' projects, and they choose whether to be regulated or not. If regulated, a supervisor certifies their capital; if not, they have to rely on more expensive private certification. Under both risk-insensitive and risk-sensitive requirements, safer entrepreneurs borrow from the market and riskier entrepreneurs borrow from banks. But risk-insensitive (sensitive) requirements are especially costly for relatively safe (risky) entrepreneurs, which may shift from regulated to shadow banks.
Banking & Insurance eJournal, 2018
We analyze a small, new credit facility of a Spanish state-owned-bank during the crisis, using it... more We analyze a small, new credit facility of a Spanish state-owned-bank during the crisis, using its continuous credit scoring system, firm-level scores, and credit register data. Compared to privately-owned banks, the state-owned bank faces worse applicants, softens (tightens) its credit supply to unobserved (observable) riskier firms, and has much higher defaults. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive.
We provide a critical assessment of the countercyclical capital buffer in the new regulatory fram... more We provide a critical assessment of the countercyclical capital buffer in the new regulatory framework known as Basel III, which is based on the deviation of the credit-to-GDP ratio with respect to its trend. We argue that a mechanical application of the buffer would tend to reduce capital requirements when GDP growth is high and increase them when GDP growth is low, so it may end up exacerbating the inherent pro-cyclicality of risk-sensitive bank capital regulation. We also note that Basel III does not address pro-cyclicality in any other way. We propose a fully rule-based smoothing of minimum capital requirements based on GDP growth.
Social Science Research Network, 2019
Ensayos Sobre Economia Y Politica Economica Homenaje a Julio Segura 2013 Isbn 978 84 940433 5 2 Pags 13 17, 2013
Economia Y Economistas Espanoles Vol 8 2004 Isbn 84 8109 281 9 Pags 1027 1036, 2004
Economic Policy
Policy discussions on the recent financial crisis feature widespread calls to address the pro-cyc... more Policy discussions on the recent financial crisis feature widespread calls to address the pro-cyclical effects of regulation. The main concern is that the new risk-sensitive bank capital regulation (Basel II) may amplify business cycle fluctuations. This paper compares the leading alternative procedures that have been proposed to mitigate this problem. We estimate a model of the probabilities of default (PDs) of Spanish firms during the period 1987-2008, and use the estimated PDs to compute the corresponding series of Basel II capital requirements per unit of loans. These requirements move significantly along the business cycle, ranging from 7.6% (in 2006) to 11.9% (in 1993). The comparison of the different procedures is based on the criterion of minimizing the root mean square deviations of each adjusted series with respect to the Hodrick-Prescott trend of the original series. The results show that the best procedures are either to smooth the input of the Basel II formula by using ...
SSRN Electronic Journal, 2007
Journal of Financial Intermediation, 2004
This paper studies the strategic interaction between a bank whose deposits are randomly withdrawn... more This paper studies the strategic interaction between a bank whose deposits are randomly withdrawn and a lender of last resort (LLR) that bases its decision on supervisory informa-tion on the quality of the bank’s assets. The bank is subject to a capital requirement and chooses the liquidity buffer that it wants to hold and the risk of its loan portfolio. The equi-librium choice of risk is shown to be decreasing in the capital requirement and increasing in the interest rate charged by the LLR. Moreover, when the LLR does not charge penalty rates, the bank chooses the same level of risk and a smaller liquidity buffer than in the absence of an LLR. Thus, in contrast with the general view, the existence of an LLR does not increase the incentives to take risk, while penalty rates do. JEL Codes: E58, G21, G28. From their inception, central banks have assumed as one of their key responsibilities the provision of liquidity to banks unable to find it elsewhere. The classical doctrine on the ...
European Economic Review, 2000
I would like to thank Patrick Bolton, Douglas Gale, and Javier Suarez for their comments, and
ECB: Working Paper Series (Topic), 2018
We analyze the effect of bank capital requirements on the structure and risk of a financial syste... more We analyze the effect of bank capital requirements on the structure and risk of a financial system where markets, regulated banks, and shadow banks coexist. Banks face a moral hazard problem in screening entrepreneurs' projects, and they choose whether to be regulated or not. If regulated, a supervisor certifies their capital; if not, they have to rely on more expensive private certification. Under both risk-insensitive and risk-sensitive requirements, safer entrepreneurs borrow from the market and riskier entrepreneurs borrow from banks. But risk-insensitive (sensitive) requirements are especially costly for relatively safe (risky) entrepreneurs, which may shift from regulated to shadow banks.
Banking & Insurance eJournal, 2018
We analyze a small, new credit facility of a Spanish state-owned-bank during the crisis, using it... more We analyze a small, new credit facility of a Spanish state-owned-bank during the crisis, using its continuous credit scoring system, firm-level scores, and credit register data. Compared to privately-owned banks, the state-owned bank faces worse applicants, softens (tightens) its credit supply to unobserved (observable) riskier firms, and has much higher defaults. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive.
We provide a critical assessment of the countercyclical capital buffer in the new regulatory fram... more We provide a critical assessment of the countercyclical capital buffer in the new regulatory framework known as Basel III, which is based on the deviation of the credit-to-GDP ratio with respect to its trend. We argue that a mechanical application of the buffer would tend to reduce capital requirements when GDP growth is high and increase them when GDP growth is low, so it may end up exacerbating the inherent pro-cyclicality of risk-sensitive bank capital regulation. We also note that Basel III does not address pro-cyclicality in any other way. We propose a fully rule-based smoothing of minimum capital requirements based on GDP growth.