The impact of Basel I capital regulation on bank deposits and loans: Empirical evidence for Europe
AbstractThe Basel Committee on Banking and Supervision established minimum capital requirements for banks in their 1988 Capital Accord. This capital regulation was adopted for European Union banks at the beginning of 1993. After the implementation, a widespread concern emerged about the possible negative impact that higher capital requirements could exert on the level of economic activity, especially on bank lending. This paper investigates the impact of the Basel Accord on bank deposits and loans for eight European countries. We follow the approach taken by Peek and Rosengren (1995a) and test for the regulatory effect in a panel structure with about 2500 individual bank balance sheets for the years 1993-1995. We find that changes in deposits are positively correlated with changes in capital. Lower-capitalized banks show a stronger response to a change in capital than their higher-capitalized competitors. This evidence is consistent with the hypothesis that the implementation of minimum capital requirements had a negative effect on the supply of bank loans
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Date of creation: 02 Feb 2007
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Bank capital regulation; Basel Accord of 1988; EU Banking;
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ACC-2007-04-09 (Accounting & Auditing)
- NEP-ALL-2007-04-09 (All new papers)
- NEP-BAN-2007-04-09 (Banking)
- NEP-REG-2007-04-09 (Regulation)
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