Italy: Basel II framework left banks defenceless against monetary policy shocks
A Bank of Italy paper published in October shows that higher capital requirements adopted by Basel II helped attenuate the pro-cyclical effects of capital regulation to shocks except in the case of monetary policy ones.
Paolo Angelini, Andrea Enria, Stefano Neri, Fabio Panetta, Mario Quagliariello - the paper's authors - use a macroeconomic euro-area model with a bank sector to study the pro-cyclical effect of the capital regulation, focusing on the extra pro-cyclicality induced by Basel II over
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