Bank Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment

Reint Gropp, Thomas C. Mosk, Steven Ongena and Carlo Wix
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Thomas C. Mosk: Goethe University Frankfurt

No 16-70, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We study the impact of higher capital requirements on banks' balance sheets and its transmission to the real economy. The 2011 EBA capital exercise provides an almost ideal quasi-natural experiment, which allows us to identify the effect of higher capital requirements using a difference-in-differences matching estimator. We find that treated banks increase their capital ratios not by raising their levels of equity, but by reducing their credit supply. We also show that this reduction in credit supply results in lower firm-, investment-, and sales growth for firms which obtain a larger share of their bank credit from the treated banks.

Keywords: bank capital requirements; bank lending; real economy (search for similar items in EconPapers)
JEL-codes: E51 E58 G21 G28 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2016-11
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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Citations: View citations in EconPapers (49)

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Related works:
Journal Article: Banks Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment (2019)
Working Paper: Bank response to higher capital requirements: Evidence from a quasi-natural experiment (2018)
Working Paper: Bank response to higher capital requirements: Evidence from a quasi-natural experiment (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1670

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