The transmission of bank capital requirements and monetary policy to bank lending

Bjorn Imbierowicz, Axel Löffler and Ursula Vogel

No 49/2019, Discussion Papers from Deutsche Bundesbank

Abstract: We investigate the transmission of changes in bank capital requirements and supranational monetary policy, and their interaction effect, on euro area bank lending and lending rates. Our results show that - for weakly capitalized banks - increases in capital requirements are in the short-run associated with a decrease in the total of domestic and cross-border bank lending. In addition, we find that there is no similar effect of capital requirements for strongly capitalized banks. Furthermore, changes in the monetary policy stance are positively related to lending rates. Regarding the interacting effect of national capital requirements and supranational monetary policy, we observe that increases in capital requirements attenuate the general effects of monetary policy on interest rates. Overall, the transmission of an accommodating monetary policy to lending rates is attenuated by contemporaneous increases in bank capital requirements which additionally imply a transitory decrease of the loan growth of weakly capitalized banks.

Keywords: Bank Lending; Lending Rates; Capital Requirements; Monetary Policy; International Policy Interaction (search for similar items in EconPapers)
JEL-codes: E52 F30 G28 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:492019

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