(When) do banks react to anticipated capital reliefs?
Steven Ongena and
Paolo Siciliani ()
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Paolo Siciliani: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
No 889, Bank of England working papers from Bank of England
We study how banks react to policy announcements during a representative policy cycle involving consultation and publication using a novel dataset on the population of all mortgage transactions and regulatory risk assessments of banks. We demonstrate that banks likely to benefit from lower capital requirements increase the size of this capital relief by permanently investing into low risk assets after the publication of the policy. In contrast, there is no evidence that they already reacted to the early step of the development of the policy, the publication of the consultation paper. We show how these results can be used to estimate a lower bound on the cost of capital for smaller banks, for which such estimates are typically difficult to obtain.
Keywords: Bank regulation; mortgage lending; supervisory review process; capital requirements (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Pages: 31 pages
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Working Paper: (When) Do Banks React to Anticipated Capital Reliefs? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0889
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