Countercyclical capital buffers and credit supply: Evidence from the COVID-19 crisis

Dursun- de Neef, H． Özlem, Alexander Schandlbauer and Colin Wittig

Journal of Banking & Finance, 2023, vol. 154, issue C

Abstract: This paper examines how European banks adjusted their lending subsequent to the release of the countercyclical capital buffers (CCyB) during the COVID-19 pandemic. At its onset in 2020Q1, being exposed to a higher ex-ante countercyclical capital buffer led to a reduction in banks’ lending. Yet the relief of the CCyBs removed this negative effect from 2020Q2 onwards. We find that the reduction in CCyBs led to a significant relative increase in the average bank’s lending by about 5.6 percentage points of their total assets. This increase happened mainly in retail mortgage loans and was stronger for poorly-capitalized banks. These results imply that the release of the CCyBs was effective in promoting bank lending during the pandemic.

Keywords: Countercyclical capital buffers; Bank lending; European banks; Bank capitalization (search for similar items in EconPapers)
JEL-codes: E51 G21 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623001358

DOI: 10.1016/j.jbankfin.2023.106930

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