The real effects of bank capital requirements

Henri Fraisse, Mathias Lé and David Thesmar

No 47, ESRB Working Paper Series from European Systemic Risk Board

Abstract: We measure the impact of bank capital requirements on corporate borrowing and investment using loanE 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 bankE 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. JEL Classification: E51, G21, G28

Keywords: bank capital ratios; bank regulation; credit supply (search for similar items in EconPapers)
Date: 2017-06
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Citations: View citations in EconPapers (55)

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Related works:
Journal Article: The Real Effects of Bank Capital Requirements (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:201747

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