Credit Growth and Bank Capital Requirements: Binding or Not?

28 Pages Posted: 4 Oct 2013 Last revised: 19 Mar 2014

See all articles by Claire Labonne

Claire Labonne

Autorité de Contrôle Prudentiel et de Résolution - Banque de France

Gildas Lame

French Ministry of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 17, 2014

Abstract

This paper examines the sensitivity of NFC lending to banks' capital ratios and their supervisory capital requirements. We use a unique database for the French banking sector between 2003 and 2011 combining confidential bank-level Bank Lending Survey answers with the discretionary capital requirements set by the supervisory authority. We find that on average, more capital means more credit. But the elasticity of lending to capital depends on the intensity of the supervisory capital constraint. More supervisory capital constrained banks tend to have a slower credit growth than unconstrained banks. We also find that the ratio of non-performing loans to total loans granted may be considered a transmission channel for supervisory requirements. More supervisory capital constrained banks tend to be more reactive to this ratio than unconstrained banks. The former are more prone to reduce credit allocation after a rise in non-performing loans than the latter.

Keywords: Bank Lending, Bank Regulation, Capital

JEL Classification: G21, G28, G32

Suggested Citation

Labonne, Claire and Lame, Gildas, Credit Growth and Bank Capital Requirements: Binding or Not? (March 17, 2014). Banque de France Working Paper No. 481, Available at SSRN: https://ssrn.com/abstract=2336033 or http://dx.doi.org/10.2139/ssrn.2336033

Claire Labonne

Autorité de Contrôle Prudentiel et de Résolution - Banque de France ( email )

61, rue Taitbout
Paris, 75436
France

Gildas Lame (Contact Author)

French Ministry of Finance ( email )

France

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
105
Abstract Views
1,296
Rank
171,612
PlumX Metrics