Basel III Implementation in Russia and its Effects on Financial Stability of the Economy

Student: Khovrenkova Elina

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Final Grade: 7

Year of Graduation: 2018

This paper develops a general equilibrium model to analyze the effects of Basel III implementation on the financial stability indicators in Russia. The model features a banking sector in order to account for financial frictions, i.e. endogenous probabilities of default. A social planner is embedded in the framework so as to find the optimal level of a minimum capital requirement that maximizes the weighted sum of all agents’ utilities. The new regulation does not appear to be welfare improving as compared to Basel II Accord unless the social planner faces certain restrictions. The results suggest that Basel III regulation positively affects financial stability variables and does not restrain banking activity.

Full text (added June 15, 2018)

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