US should tighten macro-pru to reduce recession risk – BdF study
Research recommends higher capital requirements and counter-cyclical buffers
Widespread defaults during a US recession would increase risks to the country’s banking system, a new study by the Bank of France finds.
In their working paper, Tommaso Gasparini, Vivien Lewis, Stéphane Moyen and Stefania Villa analyse firm risk and bank risk in the US between 2005 and 2020. They use the data to model the effects of large numbers of companies defaulting on their loans during a hypothetical economic shock.
During periods of crisis, such as occurred during the Covid-19 pandemic, a
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