Sharing the Burden Equally? Intra-Group Effects of Bank Capital Requirements

Hans Degryse, Mike Mariathasan and Carola Theunisz

No 18443, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper investigates the intra-group transmission of stricter capital regulation imposed at the banking group level. Specifically, we study how a policy-induced increase in the regulatory capital ratio impacts the capital adequacy composition, lending and risk-taking of the affiliated subsidiaries. Using a combination of bank and loan-level data, we find that once a banking group faces tighter consolidated capital requirements, the recapitalization efforts are concentrated at the subsidiary- as opposed to the headquarters-level. Subsidiaries reduce risk-weighted assets in part through a reduction in credit supply. This contraction is more pronounced at subsidiaries that are either relatively small, less profitable or loosely regulated.

JEL-codes: E51 E58 F36 F42 G21 G28 (search for similar items in EconPapers)
Date: 2023-09
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