Bank capital requirements and balance sheet management practices: has the relationship changed after the crisis?
Sebastian de-Ramon,
William Francis () and
Qun Harris
No 635, Bank of England working papers from Bank of England
Abstract:
We use a proprietary database of individual UK capital requirements spanning 1989 to 2013 and panel regression techniques to evaluate whether the effects of capital requirements on banks’ balance sheet adjustments changed after the 2008–09 financial crisis. We find that after the crisis banks placed more emphasis on overall asset de-leveraging. A 1 percentage point increase in capital requirements lowered total asset growth by 14 basis points before the crisis and 20 basis points after the crisis. We also find evidence of a structural change in banks’ capital management practices, with banks increasing better-quality, Tier 1 capital significantly more in response to higher requirements after the crisis than they did before the crisis. However, the effects of capital requirements on lending and risk-weighted asset growth both before and after the crisis are similar. Our results suggest that both before and after the crisis, a 1 percentage point increase in capital requirements lowered annual loan (risk-weighted asset) growth by 8 (12) basis points.
Keywords: Banking; regulatory capital requirements; bank capital ratios; bank credit supply; macroprudential tools (search for similar items in EconPapers)
JEL-codes: D21 G21 G28 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2016-12-09
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)
Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... FB5F4E026757314B44E4 Full text (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0635
Access Statistics for this paper
More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().