The Real Effects of Bank Capital Requirements

Matthieu Brun (matthieu.brun2@gmail.com), Henri Fraisse and David Thesmar
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Matthieu Brun: LAM - Les Afriques dans le monde - IEP Bordeaux - Sciences Po Bordeaux - Institut d'études politiques de Bordeaux - IRD - Institut de Recherche pour le Développement - Institut d'Études Politiques [IEP] - Bordeaux - UBM - Université Bordeaux Montaigne - CNRS - Centre National de la Recherche Scientifique

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Abstract: We measure the impact of bank capital requirements on corporate borrowing and investment using loan-level data. The Basel II regulatory framework makes capital requirements vary across both banks and across firms, which allows us to control for firm-level credit demand shocks and bank-level credit supply shocks. We find that a 1 percentage point increase in capital requirements reduces lending by 10%. Firms can attenuate this reduction by substituting borrowing across banks, but only partially. The resulting reduction in borrowing capacity impacts investment, but not working capital: Fixed assets are reduced by 2.6%, but lending to customers is unaffected.

Keywords: Bank capital ratios; Bank regulation; Credit supply (search for similar items in EconPapers)
Date: 2013-07-05
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Related works:
Working Paper: The Real Effects of Bank Capital Requirements (2013)
Working Paper: The Real Effects of Bank Capital Requirements (2013)
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