The Efficiency Wage Hypothesis and monetary policy channels of transmission: developments and progress of Basel III leverage ratios

DiGabriele, Jim and Ojo, Marianne (2017): The Efficiency Wage Hypothesis and monetary policy channels of transmission: developments and progress of Basel III leverage ratios. Forthcoming in: American Journal of Economics No. Special Issue Preserving Global Trade Relations: Impacts of Recent Global Developments (2018)

Abstract

It is argued that “ the ascendency of the emerging economies changed the relative returns to labor and capital – and that because these economies’ global integration has made labor more abundant, workers in developed countries have lost some of their bargaining power – thus putting downward pressure on real wages.” Central bankers’ misunderstanding of certain monetary implications have also been highlighted in that by keeping interest rates too low, they allowed a build up of excess liquidity which flowed into the prices of assets such as homes – contributing to the build up leading to the 2007-2009 global Financial Crisis. The introduction of the 2010 Basel III leverage ratios was intended not only to address shortcomings of the previous Basel capital framework, but also intended to serve as a complement to the risk based capital adequacy framework. However, as with many implementation challenges, other issues which involve calibration between the risk based and leverage based frameworks continue to constitute areas of concern for regulators – and supervisors. So also matters relating to disclosures – as evidenced by ongoing initiatives in respect of Pillar 3. This paper aims to highlight progress and developments being made since 2010 – as well as accentuate challenges still being encountered by the leverage based framework. Herein lies the importance of continued collaborative efforts aimed at facilitating comparability, consistency, understanding and communication between national and federal regulators and supervisors from different jurisdictions – in efforts aimed at realizing Basel III initiatives and objectives.

• Item Type: MPRA Paper
• Language: English
• Keywords: monetary policy; leverage ratios; risk based capital adequacy measures; disclosures; Efficiency wage Hypothesis
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation; K - Law and Economics > K2 - Regulation and Business Law; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing

References

Auer, R.A., and A. Mehrotra (2014). “Trade Linkages and the Globalization of Inflation in Asia and the Pacific” BIS Working papers

Auer, R.A., K. Degen, and A.M Fischer (2013). “Low Wage Import Competition, Inflationary Pressure, and Industry Dynamics in Europe,” European Economic Review, 59, pp141-66

Bank for International Settlements (2017). Twelfth Progress Report on adoption of the Basel regulatory framework, the April 2017 BIS REPORT

Basel Committee on Banking Supervision (2013). Consultative Document Revised Basel III Leverage Ratio Framework and Disclosure Requirements June 2013

Basel Committee on Banking Supervision (1999). 'Consultative Paper on a New Capital Adequacy Framework' 3rd June 1999 http://www.bis.org/press/p990603.htm>

Caruana, J. (2016). “Monetary Policy for Financial Stability” Bank for International Settlements

Federal Reserve (2013). 'Regulatory Capital Rules: Regulatory Capital, Enhanced Supplementary Leverage Ratio Standards for Certain Bank Holding Companies and their Subsidiary Insured Depository Institutions'

Ojo, M. (2015). Implementing Basel III through the Capital Requirements Directive (CRD) IV: Leverage Ratios and Capital Adequacy Requirements Journal of Business Law and Ethics June 2015 Vol 3 No 1 pp 1-38 American Research Institute for Policy Development

Shearman & Sterling LLP (2014). “Basel III Framework: The Leverage Ratio. Financial Institutions Advisory & Financial Regulation Client Publication. February 2014.

The Economist, (2006). “Surprise, The Power of the Emerging World”