 How does credit supply respond to monetary policy and bank minimum capital requirements?Shekhar Aiyar, Charles W. Calomiris and Tomasz Wieladek European Economic Review, 2016, vol. 82, issue C, 142-165 Abstract: We use data on UK banks׳ minimum capital requirements to study the interaction of monetary policy and capital requirement regulation. UK banks were subject to both time-varying capital requirements and changes in interest rate policy. Tightening of either capital requirements or monetary policy reduces the supply of lending. Lending by large banks reacts substantially to capital requirement changes, but not to monetary policy changes. Lending by small banks reacts to both. There is little evidence of interaction between these two policy instruments. The differences in the responses of small and large banks identify important distributional consequences within the financial system of these two policy instruments. Finally, our findings do not corroborate theoretical models that raise concerns about complex interactions between monetary policy and macro-prudential variation in capital requirements. Keywords: G21; G18; E51; E52; E4; Loan supply; Capital requirements; Monetary policy; Macro-prudential regulation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:82:y:2016:i:c:p:142-165 DOI: 10.1016/j.euroecorev.2015.07.021 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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