How to Release Capital Requirements During a Pandemic? Evidence from Euro Area Banks

Couaillier, Cyril; Reghezza, Alessio; d’Acri, Costanza Rodriguez; Scopelliti, Alessandro

doi:10.2139/ssrn.4220377

Cited by 5 publications

(3 citation statements)

References 31 publications

(36 reference statements)

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“…This may imply that changes to bank capital affect lending more negatively over a shorter horizon and more positively over a longer horizon. This links to the literature on the adjustment mechanism of banks' capital ratio to various shocks, for example, a regulatory tightening (Jokipii & Milne, 2011;Memmel & Raupach, 2010) and the Covid-19 pandemic (Couaillier et al, 2022;Mathur et al, 2023). Studies show that following a regulatory tightening, low-capitalized banks respond dramatically to make sure they maintain their capital ratio above the regulatory minimum.…”

Section: Capital-to-asset Ratiomentioning

confidence: 66%

Bank capital, lending, and regulation: A meta‐analysis

Malovaná

Hodula

Bajzík

et al. 2023

Journal of Economic Surveys

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We collected over 1600 estimates on the relationship between bank capital and lending and construct 40 variables to capture the context in which these estimates are obtained. Accounting for potential publication bias, we find that a 1 percentage point (pp) increase in capital (regulatory) ratio results in around 0.3 pp increase in annual credit growth, while changes to capital requirements cause a decrease of around 0.7 pp. Using Bayesian and frequentist model averaging, we show that the relationship between bank capital and lending changes over time, reflecting the post‐crisis period of increasingly demanding bank capital regulation and subdued profitability. We also find that the reported estimates of semi‐elasticities are significantly influenced by the empirical approach chosen by researchers. Our findings suggest that the literature fails to provide policymakers with reliable estimates of the effects of capital regulation on bank lending, and our study offers insights that could help guide future research.

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Section: Capital-to-asset Ratiomentioning

confidence: 66%

Bank capital, lending, and regulation: A meta‐analysis

Malovaná

Hodula

Bajzík

et al. 2023

Journal of Economic Surveys

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show abstract

“…release of capital in the Spanish case of dynamic provisioning Sivec and Volk (2022). find that in Slovenia the19 Table A2 in the Annex reports robustness of baseline results by using alternative clustering of standard errors.ECB Working Paper Series No 2796 / March 2023 impact of risk-weighted capital release was 11 p.p., while for the euro area-wide capital releaseCouaillier et al (2022b) find a 1.2-2.7% impact on lending levels.…”

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confidence: 87%

Supervisory Policy Stimulus: Evidence from the Euro Area Dividend Recommendation

2023

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“…Not for Redistribution 4 Keil, 2021). 2 Other studies, typically focused on individual countries, examine the impact of guarantees (see Cascarino et al, 2022for Italy, Jiménez et al, 2022for Spain, Altavilla et al, 2021 for several euro area economies) or countercyclical capital buffer releases (BSBS 2021;Couaillier et al 2022) on bank lending. 3 In addition, there are also case studies looking at the effects of multiple Covid-19 policies on bank lending for a specific country, such as Acosta-Henao et al (2022) for Chile.…”

Section: -Introductionmentioning

confidence: 99%