Time-varying Capital Requirements and Disclosure Rules

Effects on Capitalization and Lending Decisions of Banks

Jonas Kragh, Jesper Rangvid

Research output: Working paperResearch

Abstract

Unique and confidential Danish data allow us to identify how changes in disclosure requirements and bank-specific time-varying capital requirements affect banks' lending and capital accumu-lation decisions. We find that banks increase their capital ratios after capital requirements are increased, implying that resilience in the banking system is also increased. The increase in capital ratios is partly due to a modest reduction in lending. Using a policy changes, we show that banks react stronger to changes in capital requirements when these are public. Our results further suggest that the impact of capital requirements differ for small and large banks. Large banks raise their capital ratios more, reduce lending less, and accumulate more new capital compared to small banks.
Original languageEnglish
Place of PublicationFrederiksberg
PublisherFRIC, Copenhagen Business School
Number of pages41
Publication statusPublished - 2016

Keywords

  • Time-varying capital requirements
  • Bank lending
  • Disclosure rules
  • Basel requirements
  • Transmission mechanism

Cite this

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abstract = "Unique and confidential Danish data allow us to identify how changes in disclosure requirements and bank-specific time-varying capital requirements affect banks' lending and capital accumu-lation decisions. We find that banks increase their capital ratios after capital requirements are increased, implying that resilience in the banking system is also increased. The increase in capital ratios is partly due to a modest reduction in lending. Using a policy changes, we show that banks react stronger to changes in capital requirements when these are public. Our results further suggest that the impact of capital requirements differ for small and large banks. Large banks raise their capital ratios more, reduce lending less, and accumulate more new capital compared to small banks.",
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Time-varying Capital Requirements and Disclosure Rules : Effects on Capitalization and Lending Decisions of Banks. / Kragh, Jonas; Rangvid, Jesper.

Frederiksberg : FRIC, Copenhagen Business School, 2016.

Research output: Working paperResearch

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AB - Unique and confidential Danish data allow us to identify how changes in disclosure requirements and bank-specific time-varying capital requirements affect banks' lending and capital accumu-lation decisions. We find that banks increase their capital ratios after capital requirements are increased, implying that resilience in the banking system is also increased. The increase in capital ratios is partly due to a modest reduction in lending. Using a policy changes, we show that banks react stronger to changes in capital requirements when these are public. Our results further suggest that the impact of capital requirements differ for small and large banks. Large banks raise their capital ratios more, reduce lending less, and accumulate more new capital compared to small banks.

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