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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 Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt

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 provides an almost ideal quasi-natural experiment, which allows us to identify the effect of higher capital requirements using a difference-in-differences matching estimator. We find that treated banks increase their capital ratios not by raising their levels of equity, but by reducing their credit supply. We also show that this reduction in credit supply results in lower firm-, investment-, and sales growth for firms which obtain a larger share of their bank credit from the treated banks.

Keywords: Bank capital ratios; Bank regulation; Credit supply (search for similar items in EconPapers)
JEL-codes: E51 G21 G28 (search for similar items in EconPapers)
Date: 2016
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Related works:
Working Paper: Bank Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment (2016) Downloads
Working Paper: Bank response to higher capital requirements: Evidence from a quasi-natural experiment (2016) Downloads
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