Title: The macroeconomic effects of bank capital regulation
Authors: Benedikt Kolb - Deutsche Bundesbank (Germany) [presenting]
Esteban Prieto - Deutsche Bundesbank (Germany)
Sandra Eickmeier - Deutsche Bundesbank (Germany)
Abstract: Bank capital regulations aim at reducing risk-taking and increasing the resilience of the financial sector. A key concern, however, is whether higher capital requirements impair banks' ability to lend, with potentially long-lasting negative effects for the economy. We propose a narrative identification strategy to examine the macroeconomic effects of higher bank capital requirements. We exploit the staggered implementation of these policies to account for anticipation effects of changes in capital regulation. We find that higher capital requirements lead to a sizable reduction in bank assets and lending, with substantial negative spillovers to the real economy. These effects are, however, only short-lived and temporary. We do not find evidence for long-run negative effects of higher capital requirements on bank lending and economic activity.