Capital Requirement Reductions, Heterogeneity, and Real Economic Outcomes

Elif C. Arbatli-Saxegaard and Ragnar Juelsrud
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Elif C. Arbatli-Saxegaard: International Monetary Fund

International Journal of Central Banking, 2022, vol. 18, issue 2, 349-401

Abstract: We use bank-, loan-, and firm-level data to estimate the impact of capital requirement reductions on bank lending and real economic outcomes. We find that capital requirement reductions increase lending to both households and firms at the bank and loan level, and that the increased lending to firms translates into higher capital investment at the firm level. Furthermore, the transmission of lower capital requirements to the real economy depends on both bank and firm characteristics. It is stronger for banks with a lower capitalization. On the other hand, it is weaker for firms with a high leverage or a high default risk.

JEL-codes: E51 G21 G28 (search for similar items in EconPapers)
Date: 2022
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