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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IWH Discussion Papers ; No. 33/2016

Classification and Topics

• Classification: Wirtschaft ; Investment; Capital; Intangible Capital; Capacity ; Financial Markets and the Macroeconomy ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: banking ; regulation ; real effects of finance

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gropp, Reint E. ; Mosk, Thomas ; Ongena, Steven ; Wix, Carlo
• Event: Veröffentlichung
• (who): Leibniz-Institut für Wirtschaftsforschung Halle (IWH)
• (where): Halle (Saale)
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/148361
• URN: urn:nbn:de:gbv:3:2-66832
• Last update: 10.03.2025, 11:42 AM CET