French paper warns buffers ‘may not be sufficient’ to avoid credit crunch
Banks can feel ‘capital constrained’ even if they meet regulatory requirements
Countercyclical bank capital requirements "may not be sufficient to avoid a credit crunch" because banks might feel "constrained" even if they meet the regulatory minimums, according to a working paper published by the Banque de France.
In Bank capital adjustment process and aggregate lending, Thibaut Duprey and Mathias Lé find that even if banks hold the required amounts of capital, "market discipline" can force a "rapid" adjustment of bank balance sheets.
"Indeed an increase in the market
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