Caterina MENDICINO is Principal Economist at the Monetary Policy Research Division of the DG-Research of the European Central Bank. Her major field of expertise is quantitative macroeconomics, with particular emphasis on macro-financial linkages, macro-prudential policy and expectation-driven cycles.
She holds a Ph.D from the Stockholm School of Economics - Stockholm, Sweden - and a B.S. from the University of Rome III - Rome, Italy. Prior to joining the Monetary Policy Research Division, Caterina was ESCB/IO Economist in the Financial Research Division of the European Central Bank (2013-2015) and Economist in the Department of Economic Studies of the Bank of Portugal (2008-2013), and in the Department of Monetary and Financial Analysis of the Bank of Canada (2006-2008).
We examine the optimal size and composition of bankstotal loss absorbing capacity (TLAC). Its optimal size is driven by the trade-o¤ between providing liquidity services attached to deposits and minimizing deadweight default costs. Its optimal composition (equity vs. bail-in debt) is driven by the relative importance of two incentive problems: risk shifting (mitigated by equity) and private bene fit taking (mitigated by debt). Our quantitative results suggest that TLAC size in line with current regulation is appropriate, while an important fraction of it should consist of bail-in debt because such buffer size makes risk-shifting relatively less important at the margin.
We characterize welfare maximizing capital requirement policies in a macroeconomic model with household, firm and bank defaults calibrated to Euro Area data. We optimize on the level of the capital requirements applied to each loan class and their sensitivity to changes in default risk. We find that getting the level right (so that bank failure risk remains small) is of foremost importance, while the optimal sensitivity to default risk is positive but typically smaller than under Basel IRB formulas. When starting from low levels, initially both savers and borrowers benefit from higher capital requirements. At higher levels, only savers are in favour of tighter and more time-varying capital charges.
Accepted and Forthcoming:
Recent POLICY ARTICLES:
LOW INFLATION IN THE EURO AREA: CAUSES AND CONSEQUENCES, Occazional Paper 181, January 2017.
Final report of the ESCB expert group studying the causes of Low Inflation. https://www.ecb.europa.eu/pub/economic-research/research-networks/html/researcher_lift.en.html
LITERATURE REVIEW ON INTEGRATION OF REGULATORY CAPITAL AND LIQUIDITY INSTRUMENTS, Working Papers of the Basel Committee on Banking Supervision 30, March 2016.