Supranational rules, national discretion: Increasing versus inflating regulatory bank capital?
Reint Gropp (),
Steven Ongena (),
Ines Simac and
No 296, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE
We study how higher capital requirements introduced at the supranational level affect the regulatory capital of banks across countries. Using the 2011 EBA capital exercise as a quasi-natural experiment, we find that treated banks exploit discretion in the calculation of regulatory capital to inflate their capital ratios without a commensurate increase in their book equity and without a reduction in bank risk. Regulatory capital inflation is more pronounced in countries where credit supply is expected to tighten, suggesting that national authorities forbear their domestic banks to meet supranational requirements, with a focus on short-term economic considerations.
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Working Paper: Supranational Rules, National Discretion: Increasing versus Inflating Regulatory Bank Capital? (2021)
Working Paper: Supranational Rules, National Discretion: Increasing versus Inflating Regulatory Bank Capital? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:296
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