Supranational Rules, National Discretion: Increasing versus Inflating Regulatory Bank Capital?

Reint Gropp, Thomas C. Mosk, Steven Ongena, Carlo Wix and Ines Simac
Additional contact information
Thomas C. Mosk: University of Zurich, Research Center SAFE
Carlo Wix: Board of Governors of the Federal Reserve System
Ines Simac: KU Leuven

No 20-112, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We study how higher capital requirements introduced at the supranational level affect the regulatory capital of banks across countries. Using the 2011 EBA capital exercise as a quasi-natural experiment, we find that treated banks exploit discretion in the calculation of regulatory capital to inflate their capital ratios without a commensurate increase in their book equity and without a reduction in bank risk. Regulatory capital inflation is more pronounced in countries where credit supply is expected to tighten, suggesting that national authorities forbear their domestic banks to meet supranational requirements, with a focus on short-term economic considerations.

Keywords: Bank capital requirements; regulatory forbearance (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2020-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-rmg
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Supranational Rules, National Discretion: Increasing Versus Inflating Regulatory Bank Capital? (2024)
Working Paper: Supranational Rules, National Discretion: Increasing versus Inflating Regulatory Bank Capital? (2021)
Working Paper: Supranational rules, national discretion: Increasing versus inflating regulatory bank capital? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp20112

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