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The Real Effects of Bank Capital Requirements

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Matthieu Brun
Henri Fraisse
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Abstract

We measure the impact of bank capital requirements on corporate borrowing and investment using loan-level data. The Basel II regulatory framework makes capital requirements vary across both banks and across firms, which allows us to control for firm-level credit demand shocks and bank-level credit supply shocks. We find that a 1 percentage point increase in capital requirements reduces lending by 10%. Firms can attenuate this reduction by substituting borrowing across banks, but only partially. The resulting reduction in borrowing capacity impacts investment, but not working capital: Fixed assets are reduced by 2.6%, but lending to customers is unaffected.
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hal-02011435 , version 1 (07-02-2019)

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  • HAL Id : hal-02011435 , version 1

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Matthieu Brun, Henri Fraisse, David Thesmar. The Real Effects of Bank Capital Requirements. 2013. ⟨hal-02011435⟩
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