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Real effects of bank capital regulations: Global evidence

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  • Deli, Yota D.
  • Hasan, Iftekhar

Abstract

We examine the effect of the full set of bank capital regulations (capital stringency) on loan growth, using bank-level data for a maximum of 125 countries over the period 1998-2011. Contrary to standard theoretical considerations, we find that overall capital stringency only has a weak negative effect on loan growth. In fact, this effect is completely offset if banks hold moderately high levels of capital. Interestingly, the components of capital stringency that have the strongest negative effect on loan growth are those related to the prevention of banks to use as capital borrowed funds and assets other than cash or government securities. In contrast, compliance with Basel guidelines in using Basel- and credit-risk weights has a much less potent effect on loan growth.

Suggested Citation

  • Deli, Yota D. & Hasan, Iftekhar, 2017. "Real effects of bank capital regulations: Global evidence," Bank of Finland Research Discussion Papers 23/2017, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2017_023
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    7. Hodula, Martin & Libich, Jan, 2023. "Has monetary policy fueled the rise in shadow banking?," Economic Modelling, Elsevier, vol. 123(C).

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    More about this item

    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
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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