EconPapers    
Economics at your fingertips  
 

Does Macro‐Prudential Regulation Leak? Evidence from a UK Policy Experiment

Shekhar Aiyar (), Charles Calomiris and Tomasz Wieladek

Journal of Money, Credit and Banking, 2014, vol. 46, issue s1, 181-214

Abstract: The regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro‐prudential regimes internationally. For such regulation to be effective in controlling the aggregate supply of credit it must be the case that: (i) changes in capital requirements affect loan supply by regulated banks, and (ii) unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks. This paper examines micro evidence—lacking to date—on both questions, using a unique data set. In the UK, regulators have imposed time‐varying, bank‐specific minimum capital requirements since Basel I. It is found that regulated banks (UK‐owned banks and resident foreign subsidiaries) reduce lending in response to tighter capital requirements. But unregulated banks (resident foreign branches) increase lending in response to tighter capital requirements on a relevant reference group of regulated banks. This “leakage” is substantial, amounting to about one‐third of the initial impulse from the regulatory change.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (116) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1111/jmcb.12086

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:46:y:2014:i:s1:p:181-214

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2019-12-06
Handle: RePEc:wly:jmoncb:v:46:y:2014:i:s1:p:181-214