Too-Big-To-Lend? Capital Adequacy and Intermediation

38 Pages Posted: 22 Apr 2016 Last revised: 17 Jun 2017

See all articles by Natalya Zelenyuk

Natalya Zelenyuk

University of Queensland

Robert W. Faff

University of Queensland; Bond University

Shams Pathan

University of Newcastle - Newcastle University Business School

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

Zelenyuk, Natalya and Faff, Robert W. and Pathan, Shams, Too-Big-To-Lend? Capital Adequacy and Intermediation (February 21, 2017). Available at SSRN: https://ssrn.com/abstract=2767915 or http://dx.doi.org/10.2139/ssrn.2767915

Natalya Zelenyuk (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Bond University ( email )

Gold Coast, QLD 4229
Australia

Shams Pathan

University of Newcastle - Newcastle University Business School ( email )

5 Barrack Road
Frederic Douglass Centre
NEWCASTLE UPON TYNE, NE4 5TG
United Kingdom

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