The Real Effects of Bank Capital Requirements

43 Pages Posted: 5 Jul 2013 Last revised: 18 Sep 2015

See all articles by Henri Fraisse

Henri Fraisse

Banque de France - Autorité de contrôle Prudentiel

Mathias LÉ

Autorité de Contrôle Prudentiel et de Résolution (ACPR)

David Thesmar

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)

Date Written: August 27, 2015

Abstract

We measure the impact of bank capital requirements on corporate borrowing and investment using loan-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 bank-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.

Keywords: Bank capital ratios, Bank regulation, Credit supply

JEL Classification: E51, G21, G28

Suggested Citation

Fraisse, Henri and LÉ, Mathias and Thesmar, David, The Real Effects of Bank Capital Requirements (August 27, 2015). HEC Paris Research Paper No. FIN-2013-988. Available at SSRN: https://ssrn.com/abstract=2289787 or http://dx.doi.org/10.2139/ssrn.2289787

Henri Fraisse

Banque de France - Autorité de contrôle Prudentiel ( email )

61, rue Taitbout
Paris, 75436
France

Mathias LÉ

Autorité de Contrôle Prudentiel et de Résolution (ACPR) ( email )

61, rue Taitbout
Paris, 75436
France

David Thesmar (Contact Author)

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
16172259767 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
563
Abstract Views
2,655
rank
47,655
PlumX Metrics