Title: The effects of bank capital requirements on bank lending: What can we learn from the post-crisis regulatory reforms
Authors: Rochelle Edge - Federal Reserve Board (United States) [presenting]
Jose Berrospide - Federal Reserve Board (United States)
Abstract: Events associated with the implementation of a number of U.S. post-crisis capital reforms are used to consider the impact of bank capital requirements on bank lending. We conduct our analysis separately for small bank holding companies (BHCs) and for large BHCs. In both cases we use the arrival of new information on capital requirements, which affected different BHCs by differential magnitudes, to estimate these impacts. The new information on capital requirements that we use varies between our small and large BHC analysis and our empirical strategies also differ. For small BHCs we rely on new information contained in the announcement of the U.S. banking agencies proposed Basel III capital rules of June 2012 and final Basel III capital rules of July 2013 and, in particular, on changes in measured regulatory capital ratios implied by differences in how these rules set various assets risk weights and defined qualifying regulatory tier 1 capital. For large BHCs we rely on new information contained in the first public release of the CCAR stress-test results in March 2012. We find negative but relatively small effects of increases in regulatory capital requirements on lending for small U.S. BHCs but larger effects for large BHCs for which, due to our use of a BHC-firm matched sample, we are able to control better for loan demand influences.