Supranational Rules, National Discretion: Increasing versus Inflating Regulatory Bank Capital?

Steven Ongena, Reint Gropp, Thomas Mosk, Ines Simac and Carlo Wix

No 15764, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study how higher capital requirements introduced at the supranational and implemented at the national level affect the regulatory capital of banks across countries. Using the 2011 EBA capital exercise as a quasi-natural experiment, we find that affected banks inflate their levels of regulatory capital without a commensurate increase in their book equity and without a reduction in bank risk. This observed regulatory capital inflation is more pronounced in countries where credit supply is expected to tighten. Our results suggest that national authorities forbear their domestic banks to meet supranational requirements, with a focus on short-term economic considerations.

Keywords: Capital requirements; Eba capital exercise; National forbearance (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Supranational Rules, National Discretion: Increasing Versus Inflating Regulatory Bank Capital? (2024)
Working Paper: Supranational Rules, National Discretion: Increasing versus Inflating Regulatory Bank Capital? (2020)
Working Paper: Supranational rules, national discretion: Increasing versus inflating regulatory bank capital? (2020)
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