The Real Effects of Capital Requirements and Monetary Policy: Evidence from the United Kingdom

53 Pages Posted: 16 May 2016

See all articles by Filippo De Marco

Filippo De Marco

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; CEPR Financial Economics

Tomasz Wieladek

Bank of England

Multiple version iconThere are 2 versions of this paper

Date Written: May 2016

Abstract

We study the effects of bank-specific capital requirements on Small and Medium Enterprises (SMEs) in the UK from 1998 to 2006. Following a 1% increase in capital requirements, SMEs' asset growth contracts by 6.9% in the first year of a new bank-firm relationship, but the effect declines over time. We also compare the effects of capital requirements to those of monetary policy. Monetary policy only affects firms with higher credit risk and those borrowing from small banks, whereas capital requirements affect both. Capital requirement changes, instead, do not affect firms with alternative sources of finance, but monetary policy shocks do.

Keywords: Capital requirements, Firm-level real effects, prudential and monetary policy., relationship lending, SMEs

JEL Classification: E51, G21, G28

Suggested Citation

De Marco, Filippo and Wieladek, Tomasz, The Real Effects of Capital Requirements and Monetary Policy: Evidence from the United Kingdom (May 2016). CEPR Discussion Paper No. DP11265, Available at SSRN: https://ssrn.com/abstract=2780373

Filippo De Marco (Contact Author)

Bocconi University - Department of Finance ( email )

Department of Finance
Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

CEPR Financial Economics ( email )

London
United Kingdom

Tomasz Wieladek

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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