XXV Edition

1-2 December 2016"

Bank Capital and Firm Lending: The Case for Switzerland

Mukherjee Abhik, Lausanne Polytechnic Federal School
Wunderli Dan, Swiss National Bank
Lambertini Luisa, Lausanne Polytechnic Federal School
Bichsel Robert, Swiss National Bank

We use confidential loan-by-loan data of Swiss banks to study the impact of higher capital requirements on lending. Unlike other studies based on loan stocks or specific loan category, our data allows us to trace the link between bank capital and new credit granted. Additionally bank-specific variation of capital targets allows us to analyze how deviation from the regulatory capital target impacts loan pricing and volume. We find that tighter capital regulation has small but statistically significant short-term effects on loan pricing and growth (in the usual sense of everything else being equal). We do not find a permanent effect of higher capital ratios on loan growth.

Area: Financial Regulation and Supervision

Keywords: Bank capital, Lending, Capital Requirements

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