Bank Capital Requirements, Loan Guarantees and Firm Performance
46 Pages Posted: 6 Jun 2019 Last revised: 9 Jun 2019
Date Written: April 13, 2019
This paper studies the effects of the bank capital requirements imposed by the European authorities in October 2011 on loan collateral and personal guarantees usage to enhance capital ratios. We use detailed information on the loan contracts granted by a representative Spanish bank and several subsidiaries to nonfinancial corporations around that date. We document that personal guarantees usage increases more than that of collateral, especially at subsidiaries with lower capital ratios. However, although the former type of guarantees demonstrably disciplined firms in their risk-taking before 2011, their subsequent overuse may have blunted their impact and may have even undermined firm performance and investment.
Keywords: Banks, Asymmetric Information, Real Guarantees, Personal Guarantees, Risk Taking, Capital Requirements
JEL Classification: D43, E32, G21, G32
Suggested Citation: Suggested Citation