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The international transmission of bank capital requirements: evidence from the United Kingdom

Author

Listed:
  • Aiyar, Shekhar

    (International Monetary Fund)

  • Calomiris, Charles

    (Columbia Business School)

  • Hooley, John

    (International Monetary Fund)

  • Korniyenko , Yevgeniya

    (International Monetary Fund)

  • Wieladek, Tomasz

    (Bank of England)

Abstract
We use data on UK banks’ minimum capital requirements to study the impact of changes to bank-specific capital requirements on cross-border bank loan supply from 1999 Q1 to 2006 Q4. By examining a sample in which each recipient country has multiple relationships with UK-resident banks, we are able to control for demand effects. We find a negative and statistically significant effect of changes to banks’ capital requirements on cross-border lending: a 100 basis point increase in the requirement is associated with a reduction in the growth rate of cross-border credit of 5.5 percentage points. We also find that banks tend to favour their most important country relationships, so that the negative cross-border credit supply response in ‘core’ countries is significantly less than in others. Banks tend to cut back cross-border credit to other banks (including foreign affiliates) more than to firms and households, consistent with shorter maturity, wholesale lending which is easier to roll off and may be associated with weaker borrowing relationships.

Suggested Citation

  • Aiyar, Shekhar & Calomiris, Charles & Hooley, John & Korniyenko , Yevgeniya & Wieladek, Tomasz, 2014. "The international transmission of bank capital requirements: evidence from the United Kingdom," Bank of England working papers 497, Bank of England.
    • Handle: RePEc:boe:boeewp:0497
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2014/the-international-transmission-of-bank-capital-requirements-evidence-from-the-uk.pdf?la=en&hash=84391E644DF3BF6E6D7C9AB46BA18AF085D6B8B5
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    More about this item

    Keywords

    Cross-border lending; loan supply; capital requirements; international transmission;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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