Revisiting the Impact of Bank Capital Requirements on Lending and Real Activity

37 Pages Posted: 10 Nov 2015

See all articles by Gianni De Nicolo

Gianni De Nicolo

Johns Hopkins University - Carey Business School; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 20, 2015

Abstract

Several studies undertaken in the aftermath of the 2007-2009 crises found a relatively small impact of an increase in capital requirements on lending and real activity both in the short- and long-run. The calibrations of some recent equilibrium models deliver a significantly larger impact of changes in capital requirements on lending and real activity than these earlier studies. This paper revisits the issue reviewing the recent literature and providing novel evidence using international data panels at a firm and country level. This new evidence and the counterfactual experiments of some calibrated equilibrium models suggest that the negative short-run and long-run impact of an increase in capital requirements on bank lending and real activity is significantly larger than previously thought.

Keywords: bank capital, bank lending, real activity

JEL Classification: G21, C23

Suggested Citation

De Nicolo, Gianni, Revisiting the Impact of Bank Capital Requirements on Lending and Real Activity (June 20, 2015). Available at SSRN: https://ssrn.com/abstract=2688110 or http://dx.doi.org/10.2139/ssrn.2688110

Gianni De Nicolo (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
(410) 234-4507 (Phone)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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