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The impact of changes in bank capital requirements

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  • Raja, Akash

    (Bank of England)

Abstract

This paper studies how banks respond to capital regulation using confidential data on bank‑specific requirements in the UK. Banks do adjust their capital ratios following changes in requirements, though the pass-through is incomplete. While they lower capital ratios following a loosening of requirements, they eat into their existing capital buffers when facing tighter regulatory minima. I find that the main adjustment channels have changed since the financial crisis. Prior to the crisis, banks responded to changes in their requirements through capital accumulation and loan quantities; however, they have since then primarily altered the risk composition of assets.

Suggested Citation

  • Raja, Akash, 2023. "The impact of changes in bank capital requirements," Bank of England working papers 1004, Bank of England.
    • Handle: RePEc:boe:boeewp:1004
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital requirements; microprudential policy; banking; capital ratios;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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