Capital Regulations and the Management of Credit Commitments During Crisis Times

78 Pages Posted: 17 Dec 2019

See all articles by Paul Pelzl

Paul Pelzl

NHH Norwegian School of Economics

Maria Teresa Valderrama

Austrian National Bank

Multiple version iconThere are 2 versions of this paper

Date Written: December 12, 2019

Abstract

Drawdowns on credit commitments by firms reduce a bank's regulatory capital ratio. Using the Austrian Credit Register, we provide novel evidence that during the 2008-09 financial crisis, capital-constrained banks managed this concern by substantially cutting partly or fully unused credit commitments. Controlling for a bank's capital position, we also find that greater liquidity problems induced banks to considerably cut such credit commitments during the crisis. These results suggest that banks actively manage both capital and liquidity risk caused by undrawn credit commitments in periods of financial distress, but thereby reduce liquidity provision to firms exactly when they need it most.

Keywords: Capital Regulations, Credit Commitments, Financial Crisis

JEL Classification: E51, G01, G21, G28, G32

Suggested Citation

Pelzl, Paul and Valderrama, Maria Teresa, Capital Regulations and the Management of Credit Commitments During Crisis Times (December 12, 2019). De Nederlandsche Bank Working Paper No. 661, Available at SSRN: https://ssrn.com/abstract=3505151 or http://dx.doi.org/10.2139/ssrn.3505151

Paul Pelzl (Contact Author)

NHH Norwegian School of Economics ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://paul-pelzl.com

Maria Teresa Valderrama

Austrian National Bank ( email )

A-1011 Vienna, 1090
Austria

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