Capital Regulations and the Management of Credit Commitments during Crisis Times

Paul Pelzl and Maria Valderrama ()

No 2020/12, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: Drawdowns on credit commitments by firms reduce a bank’s capital buffer. Exploiting Austrian credit register data and the 2008-09 financial crisis as exogenous shock to bank health, we provide novel evidence that capital-constrained banks manage this concern by substantially cutting partly or fully unused credit commitments. Controlling for a bank’s capital position, we further find that also larger liquidity problems induce banks to cut such commitments. These results show that banks manage both capital and liquidity risk posed by undrawn credit commitments in periods of financial distress, but thereby reduce liquidity insurance to firms exactly when they need it most.

Keywords: Capital Regulations; Credit Commitments; Financial Crisis (search for similar items in EconPapers)
JEL-codes: E51 G01 G21 G28 G32 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2020-10-15
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-ias, nep-mac and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:nhhfms:2020_012

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