Bank Capital Pressures, Loan Substitutability, and Nonfinancial Employment

Seung Jung Lee and Viktors Stebunovs

No 1161, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We exploit the cross-state, cross-time variation in bank tangible capital ratios-brought about by bank branch deregulation on a state-by-state basis-to identify the effects of bank capital pressures on employment and firm dynamics during two waves of changes in bank capital regulation. We show that stronger capital pressures temporarily slowed down growth in employment in industries that depend on external finance, retarding growth in the average size of firms rather than in the number of firms. Such effects were particularly strong for smaller firms that may not have had access to national capital and bank loan markets. Our findings indicate that a tightening of capital requirements may have significant real effects, in part because of the lack of substitutes for bank loans.

Keywords: Bank capital ratios; bank capital regulations; loan substitutability; employment; firm dynamics (search for similar items in EconPapers)
JEL-codes: G21 G28 G30 J20 L25 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2016-04
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-ent, nep-lma, nep-pke and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Bank capital pressures, loan substitutability, and nonfinancial employment (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1161

DOI: 10.17016/IFDP.2016.1161

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