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The organizations financial statements are the ultimate report card after a certain interval (principally twelve months). Ought to monetary policy lean towards financial stability risks? Unfavourable monetary policy rates are related to a specific friction because the remuneration of retail deposits tends to be floored at zero. We construct a stylized common equilibrium model during which the important thing friction comes from a moral hazard problem in companies financing that banks’ equity capital serves to ameliorate.
We find that home banks reduce lending after the tightening of capital requirements in different nations, whereas they improve lending when loan-to-value (LTV) limits or reserve necessities are tightened overseas...Read More