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The pass-through of bank capital requirements to corporate lending spreads

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  • Bichsel, Robert
  • Lambertini, Luisa
  • Mukherjee, Abhik
  • Wunderli, Dan

Abstract

We study the impact of higher bank capital requirements on corporate lending spreads using granular bank- and loan-level data. Our empirical strategy employs the heterogeneity in capital requirements across banks and time of implementation in Switzerland. We find that changes in the capital deviation from the regulatory minimum affect lending spreads asymmetrically. In response to a reduction in the capital deviation, banks with deficits with respect to their risk-weighted capital requirement raise spreads relative to banks with surpluses and de-leverage. Banks respond to higher requirements by raising spreads and, for deficit banks, by cutting lending.

Suggested Citation

  • Bichsel, Robert & Lambertini, Luisa & Mukherjee, Abhik & Wunderli, Dan, 2022. "The pass-through of bank capital requirements to corporate lending spreads," Journal of Financial Stability, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:finsta:v:58:y:2022:i:c:s1572308921000693
    DOI: 10.1016/j.jfs.2021.100910
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank capital requirements; Lending spreads; Bank regulation;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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