Bank response to higher capital requirements: Evidence from a quasi-natural experiment

Reint Gropp, Thomas Mosk, Steven Ongena and Carlo Wix

No 156, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We study the impact of higher capital requirements on banks' balance sheets and its transmission to the real economy. The 2011 EBA capital exercise is an almost ideal quasi-natural experiment to identify this impact with a difference-in-differences matching estimator. We find that treated banks increase their capital ratios by reducing their risk-weighted assets and - consistent with debt overhang - not by raising their levels of equity. Banks reduce lending to corporate and retail customers, resulting in lower asset-, investment- and sales growth for firms obtaining a larger share of their bank credit from the treated banks.

Date: 2018, Revised 2018
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Citations: View citations in EconPapers (84)

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https://www.econstor.eu/bitstream/10419/203304/1/safe-wp-156_2.pdf (application/pdf)

Related works:
Journal Article: Banks Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment (2019)
Working Paper: Bank Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment (2016)
Working Paper: Bank response to higher capital requirements: Evidence from a quasi-natural experiment (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:156

DOI: 10.2139/ssrn.2877771

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