Elif C. Arbatli-Saxegaarda and Ragnar E. Juelsrudb
We use bank-, loan-, and firm-level data to estimate the impact of capital requirement reductions on bank lending and real economic outcomes. We find that capital requirement reductions increase lending to both households and firms at the bank and loan level, and that the increased lending to firms translates into higher capital investment at the firm level. Furthermore, the transmission of lower capital requirements to the real economy depends on both bank and firm characteristics. It is stronger for banks with a lower capitalization. On the other hand, it is weaker for firms with a high leverage or a high default risk.
JEL Code: E51, G21, G28.
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a International Monetary Fund
b Norges Bank