Bank Capital and Firm Lending: The Case for Switzerland
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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