Estimating the impact of changes in aggregate bank capital requirements during an upswing

This paper estimates the effect of changes in capital requirements applied to all UK-resident banks' aggregate capital requirements on lending during a credit boom. It is a 'top-down' study that investigates the joint dynamics of the aggregate capital ratio of UK-resident banks and a...

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Bibliographic Details
Published in:Bank of England. Quarterly Bulletin 2014-04, Vol.54 (2), p.245
Main Authors: Noss, Joseph, Toffano, Priscilla
Format: Article
Language:English
Subjects:
Banks
Capital requirements
Changes
Estimating techniques
Impact analysis
Studies
Online Access:Get full text
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Summary:This paper estimates the effect of changes in capital requirements applied to all UK-resident banks' aggregate capital requirements on lending during a credit boom. It is a 'top-down' study that investigates the joint dynamics of the aggregate capital ratio of UK-resident banks and a set of macrofinancial variables, including lending growth. Its results may be useful to policymakers given the growing international consensus on the need to apply time-varying macroprudential bank capital requirements on top of existing microprudential requirements. The estimates of the impact of aggregate capital requirements on lending may -- in certain states of the economic cycle -- provide policymakers with a plausible 'upper bound' on the short-term effects of future increases in macroprudential capital requirements.
ISSN:0005-5166
2399-4568