The Costs and Benefits of Bank Capital Requirements

15 Pages Posted: 3 Mar 2018

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: March 3, 2018

Abstract

This paper presents empirical evidence on the impact of changes in capital requirements on bank lending, and delivers estimates of their costs and benefits in terms of foregone real GDP growth. The empirical analysis is based on large international datasets at a firm and country level, including data of the 2007-2009 crisis and beyond. I find that an increase in regulatory capital ratios reduces real GDP growth, with this reduction offsetting its benefits in terms of a reduced probability of a banking crisis. This evidence suggests that the net benefits of an increase in capital requirements may be negligible.

Keywords: Bank Capital, Bank Lending, Real Activity, Costs, Benefits

JEL Classification: G21, C23

Suggested Citation

De Nicolo, Gianni, The Costs and Benefits of Bank Capital Requirements (March 3, 2018). Available at SSRN: https://ssrn.com/abstract=3133821 or http://dx.doi.org/10.2139/ssrn.3133821

Gianni De Nicolo (Contact Author)

Johns Hopkins University - Carey Business School ( email )

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

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

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Munich, DE-81679
Germany

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