The Real Effects of Capital Requirements and Monetary Policy: Evidence from the United Kingdom

Filippo De Marco and Tomasz Wieladek

No 1640, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: We study the effects of bank-specific capital requirements on Small and Medium Enterprises (SMEs) in the UK from 1998 to 2006. Following a 1% increase in capital requirements, SMEs’ asset growth contracts by 6.9% in the first year of a new bankfirm relationship, but the effect declines over time. We also compare the effects of capital requirements to those of monetary policy. Monetary policy only affects firms with higher credit risk and those borrowing from small banks, whereas capital requirements affect both. Capital requirement changes, instead, do not affect firms with alternative sources of finance, but monetary policy shocks do.

Keywords: Capital requirements; SME real effects; relationship lending; microprudential and monetary policy (search for similar items in EconPapers)
JEL-codes: E51 G21 G28 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2016
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-ent, nep-fdg, nep-mac, nep-mon and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: The real effects of capital requirements and monetary policy: Evidence from the United Kingdom (2021)
Working Paper: The Real Effects of Capital Requirements and Monetary Policy: Evidence from the United Kingdom (2016)
Working Paper: The real effects of capital requirements and monetary policy: evidence from the United Kingdom (2015)
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