Does regulation only bite the less profitable? Evidence from the too-big-to-fail reforms
Tirupam Goel (),
Ulf Lewrick and
Aakriti Mathur ()
Additional contact information
Tirupam Goel: Bank for International Settlements
No 946, Bank of England working papers from Bank of England
Profitability underpins the opportunity cost of shrinking assets and the ability to generate capital. It thus shapes banks’ responses to higher capital requirements. We present a stylised model to formalise this insight and test our theoretical predictions on a cornerstone of the too-big-to-fail reforms. Leveraging textual analysis to identify the treatment date, we show that less profitable banks reduced their systemic importance as intended by regulation. Those close to the regulatory thresholds that determine bank-specific capital surcharges – a source of exogenous variation in the regulatory treatment – shrunk by even more. In contrast, more profitable banks continued to expand.
Keywords: Global systemically important bank (G-SIB); textual analysis; capital regulation; systemic risk; bank profitability; difference-in-differences (DD) (search for similar items in EconPapers)
JEL-codes: G21 G28 L51 (search for similar items in EconPapers)
Pages: 55 pages
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ifn, nep-reg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... -to-fail-reforms.pdf Full text (application/pdf)
Working Paper: Does regulation only bite the less profitable? Evidence from the too-big-to-fail reforms (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0946
Access Statistics for this paper
More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().