Sharing the Burden Equally? Intra-Group Effects of Bank Capital Requirements

49 Pages Posted: 17 Jul 2023

See all articles by Hans Degryse

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB)

Mike Mariathasan

KU Leuven- Faculty of Economics & Business

Carola Theunisz

Frankfurt School of Finance and Management; KU Leuven

Date Written: July 10, 2023

Abstract

This paper investigates the intra-group transmission of stricter capital regulation imposed at the banking group level. Specifically, we study how a policy-induced increase in the regulatory capital ratio impacts the capital adequacy composition, lending and risk-taking of the affiliated subsidiaries. Using a combination of bank and loan-level data, we find that once a banking group faces tighter consolidated capital requirements, the recapitalization efforts are concentrated at the subsidiary- as opposed to the headquarters-level. Subsidiaries reduce risk-weighted assets in part through a reduction in credit supply. This contraction is more pronounced at subsidiaries that are either relatively small, less profitable or loosely regulated.

Keywords: capital requirements, credit supply, international shock transmission

JEL Classification: E51, E58, F36, F42, G21, G28

Suggested Citation

Degryse, Hans and Mariathasan, Mike and Theunisz, Carola, Sharing the Burden Equally? Intra-Group Effects of Bank Capital Requirements (July 10, 2023). Available at SSRN: https://ssrn.com/abstract=4505260 or http://dx.doi.org/10.2139/ssrn.4505260

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Mike Mariathasan

KU Leuven- Faculty of Economics & Business ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Carola Theunisz (Contact Author)

Frankfurt School of Finance and Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

KU Leuven ( email )

Naamsestraat 69
Leuven, Vlaams-Brabant 3000
Belgium

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