Page 59 - Ekonomija i Biznis_oktomvri 2016.indd

BANKING

(photo: http://financialtribune.com/) my, several macroeconomic effects of
the increased bank capital are distin-
this country, this rate is continuously guished as key benefits for the econ-
higher than the prescribed minimum, omy. First, the higher level of capital
whereby in the past few years it is ap- in banks’ balance sheets contributes
proximately 16%. It is important that for strengthening of the stability of
equity has dominant participation in the financial system in conditions of
the structure of bank’s own funds, crisis and reduction of the insolvency
which is a good foundation for migra- risk. The last financial crisis showed
tion towards Basel 3. how easily the problems that the fi-
nancial sector is facing, spillover into
Considering all of this, inevitably the real sector causing a chain reac-
a question imposes, what do banks tion. There are numerous claims that
and the economy as a whole, get from if the banks in the United States,
the continuous strengthening of the among other things, were better capi-
capital requirements first by the Ba- talized, the crisis would have been of
sel Committee on Banking Supervi- a smaller scale than what really hap-
sion, and then by the national regula- pened. Namely, when banks already
tory authorities. In other words, what face with losses which cause capital
would be the macroeconomic and mi- erosion, recapitalization might be a
croeconomic effects of the high rates better solution compared to the sale
of capitalization of banks. of active positions. The second op-
tion would cause downward pressure
Macroeconomic effects on the market prices of the competi-
Analyzed at the level of the econo- tive active positions at the level of a
banking system. The fall in prices of
active positions would cause even
greater losses in banks, a decline of
consumption and reduction of the
gross domestic product (GDP). Second,
well-capitalized banks reduce the
need of governmental intervention in
conditions of crisis whereby tax bonds
would have the final benefits. Third,
in normal economic conditions, the
higher level of bank capital implies
less probability for the emergence of a
financial crisis. However, the increase
of capital must reach a specific level
determined as optimal considering
the results of a research of the Bank
for international settlements that by
increasing capital in banks, the mar-
ginal utility per unit of additional cap-
ital decreases.

In addition to the positive effects,
the increase of bank capital may also
cause specific negative effects on the
economy. The negative macroeconom-
ic effects of the higher capital levels
are indirectly reflected on the GDP
through the credit activity and the in-
terest rates. Namely, the increase of

October 2016 59