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The international transmission of bank capital requirements: evidence from the United Kingdom

Shekhar Aiyar (), Charles Calomiris, John Hooley (), Yevgeniya Korniyenko () and Tomasz Wieladek
Additional contact information
John Hooley: International Monetary Fund
Yevgeniya Korniyenko: International Monetary Fund

No 497, Bank of England working papers from Bank of England

Abstract: We use data on UK banks’ minimum capital requirements to study the impact of changes to bank-specific capital requirements on cross-border bank loan supply from 1999 Q1 to 2006 Q4. By examining a sample in which each recipient country has multiple relationships with UK-resident banks, we are able to control for demand effects. We find a negative and statistically significant effect of changes to banks’ capital requirements on cross-border lending: a 100 basis point increase in the requirement is associated with a reduction in the growth rate of cross-border credit of 5.5 percentage points. We also find that banks tend to favour their most important country relationships, so that the negative cross-border credit supply response in ‘core’ countries is significantly less than in others. Banks tend to cut back cross-border credit to other banks (including foreign affiliates) more than to firms and households, consistent with shorter maturity, wholesale lending which is easier to roll off and may be associated with weaker borrowing relationships.

Keywords: Cross-border lending; loan supply; capital requirements; international transmission (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 G18 G21 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2014-04-17
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ifn and nep-mac
References: View complete reference list from CitEc
Citations: View citations in EconPapers (133) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0497

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