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Sharing the Burden Equally? Intra-Group Effects of Bank Capital Requirements

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Listed:
  • Degryse, Hans
  • Mariathasan, Mike
  • Theunisz, Carola

Abstract

This paper investigates the intra-group transmission of stricter capital regulation imposed at the banking group level. Specifically, we study how a policy-induced increase in the regulatory capital ratio impacts the capital adequacy composition, lending and risk-taking of the affiliated subsidiaries. Using a combination of bank and loan-level data, we find that once a banking group faces tighter consolidated capital requirements, the recapitalization efforts are concentrated at the subsidiary- as opposed to the headquarters-level. Subsidiaries reduce risk-weighted assets in part through a reduction in credit supply. This contraction is more pronounced at subsidiaries that are either relatively small, less profitable or loosely regulated.

Suggested Citation

  • Degryse, Hans & Mariathasan, Mike & Theunisz, Carola, 2023. "Sharing the Burden Equally? Intra-Group Effects of Bank Capital Requirements," CEPR Discussion Papers 18443, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18443
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    More about this item

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • 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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