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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Banks Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment
Organization Unit
Authors
  • Reint Gropp
  • Thomas Mosk
  • Steven Ongena
  • Carlo Wix
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Journal Title Review of Financial Studies
Publisher Society for Financial Studies
Geographical Reach international
Volume 32
Number 1
Page Range 266 - 299
Date 2019
Abstract Text We study the impact of higher capital requirements on banks’ balance sheets and its transmission to the real economy. The 2011 EBA capital exercise is an almost ideal quasi-natural experiment to identify this impact with a difference-in-differences matching estimator. We find that treated banks increase their capital ratios by reducing their risk-weighted assets and - consistent with debt overhang - not by raising their levels of equity. Banks reduce lending to corporate and retail customers, resulting in lower asset-, investment- and sales growth for firms obtaining a larger share of their bank credit from the treated banks.
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Digital Object Identifier 10.1093/rfs/hhy052
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