Capital Regulations and the Management of Credit Commitments during Crisis Times

73 Pages Posted: 16 Oct 2020

See all articles by Paul Pelzl

Paul Pelzl

NHH Norwegian School of Economics

Maria Teresa Valderrama

Österreichische Nationalbank - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 15, 2020

Abstract

Drawdowns on credit commitments by firms reduce a bank’s capital buffer. Exploiting Austrian credit register data and the 2008-09 financial crisis as exogenous shock to bank health, we provide novel evidence that capital-constrained banks manage this concern by substantially cutting partly or fully unused credit commitments. Controlling for a bank’s capital position, we further find that also larger liquidity problems induce banks to cut such commitments. These results show that banks manage both capital and liquidity risk posed by undrawn credit commitments in periods of financial distress, but thereby reduce liquidity insurance 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 (October 15, 2020). NHH Dept. of Business and Management Science Discussion Paper No. 2020/12, Available at SSRN: https://ssrn.com/abstract=3712486 or http://dx.doi.org/10.2139/ssrn.3712486

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

Österreichische Nationalbank - Department of Economics ( email )

Vienna, 1010
Austria

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