The Real Effects of Bank Capital Requirements
Name
SSRN-id3723394.pdf
Description
Submitted version
Size
1.33 MB
Format
Adobe PDF
Checksum (MD5)
acf4a6f462601de3947ebb373408cc88
Author(s)
Fraisse, Henri
Lé, Mathias
Thesmar, David
Date Issued
2020
Journal
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Version
Original manuscript
Abstract
© 2019 INFORMS. We measure the impact of bank capital requirements on corporate borrowing, investment, and employment using loan-level data. The Basel II regulatory framework makes capital requirements vary across both banks and firms, which allows us to control for time-varying firm-level risk and bank-level credit supply shocks. We find that a 1 percentage point increase in capital requirements reduces lending by 2.3%-4.5%. Firms can attenuate this reduction by substituting borrowing across banks, but only to a limited extent. The resulting reduction in borrowing capacity affects significantly both investment and employment: for firmswhose effective capital requirements increase by 1 percentage point, fixed assets are reduced by 1.1%, capital expenditures by 2.7%, and employment by 0.8%.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
10.1287/MNSC.2018.3222
