Too-Big-To-Lend? Capital Adequacy and Intermediation
38 Pages Posted: 22 Apr 2016 Last revised: 17 Jun 2017
Date Written: February 21, 2017
Abstract
We extend the literature on the real effects of macro-prudential regulation by investigating the link between capital adequacy and financial intermediation. Ruminating that deposit growth and loan growth are the most important economic parts of intermediation, we find that mandatory increase in capital adequacy is followed by reduced growth. The mandatory increase stems from the Federal Reserve regulation change of 2013 and leads to identification of the intermediation effects by means of the quasi-natural experiment, employing a combined empirical strategy of difference-in-differences and regression discontinuity design. Both methods point to economically significant evidence for reduction of intermediation. These changes are likely to be supply-driven and complemented by employment effects.
Keywords: Banking, Capital Adequacy, Financial Intermediation, Regression Discontinuity
JEL Classification: G1, G21, G28, E6, O4
Suggested Citation: Suggested Citation