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The real effects of bank capital requirements

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  • Fraisse, Henri
  • Lé, Mathias
  • Thesmar, David

Abstract

We measure the impact of bank capital requirements on corporate borrowing and investment using loanE level data. The Basel II regulatory framework makes capital requirements vary across both banks and across firms, which allows us to control for firm level credit demand shocks and bankE level credit supply shocks. We find that a 1 percentage point increase in capital requirements reduces lending by 10%. Firms can attenuate this reduction by substituting borrowing across banks, but only partially. The resulting reduction in borrowing capacity impacts investment, but not working capital: Fixed assets are reduced by 2.6%, but lending to customers is unaffected. JEL Classification: E51, G21, G28

Suggested Citation

  • Fraisse, Henri & Lé, Mathias & Thesmar, David, 2017. "The real effects of bank capital requirements," ESRB Working Paper Series 47, European Systemic Risk Board.
    • Handle: RePEc:srk:srkwps:201747
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    References listed on IDEAS

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    More about this item

    Keywords

    bank capital ratios; bank regulation; credit supply;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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