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Did the EBA Capital Exercise Cause a Credit Crunch in the Euro Area?

Author

Listed:
  • Jean-Stéphane Mésonnier

    (Banque de France)

  • Allen Monks

    (Central Bank of Ireland)

Abstract

We exploit a unique monthly data set of euro-area bank balance sheets to document the impact of the EBA’s 2011/12 capital exercise on bank lending.We find that banks in a banking group forced to increase its CT1 capital ratio by 1 percent had an annualized loan growth (over nine months) that was 1.2 percent lower than that of banks in unconstrained groups. We also find at the country level that banks that did not have to recapitalize did not substitute for more constrained lenders. Our results are of particular relevance for the decisions facing the new European Single Supervisory Mechanism.

Suggested Citation

  • Jean-Stéphane Mésonnier & Allen Monks, 2015. "Did the EBA Capital Exercise Cause a Credit Crunch in the Euro Area?," International Journal of Central Banking, International Journal of Central Banking, vol. 11(3), pages 75-117, June.
  • Handle: RePEc:ijc:ijcjou:y:2015:q:3:a:2
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Gropp, Reint & Mosk, Thomas & Ongena, Steven & Wix, Carlo, 2016. "Bank response to higher capital requirements: Evidence from a quasi-natural experiment," SAFE Working Paper Series 156, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    2. Kok, Christoffer & Gross, Marco & Żochowski, Dawid, 2016. "The impact of bank capital on economic activity - evidence from a mixed-cross-section GVAR model," Working Paper Series 1888, European Central Bank.
    3. Xiong, Wanting & Wang, Yougui, 2017. "The impact of Basel III on money creation: A synthetic analysis," Economics Discussion Papers 2017-53, Kiel Institute for the World Economy (IfW).
    4. Luca Onorante & Matija Lozej & Ansgar Rannenberg, 2017. "Countercyclical capital regulation in a small open economy DSGE model," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Data needs and Statistics compilation for macroprudential analysis, volume 46 Bank for International Settlements.
    5. Lubberink, Martien, 2014. "Are banks’ below-par own debt repurchases a cause for prudential concern?," MPRA Paper 59475, University Library of Munich, Germany.
    6. Sergio Mayordomo & María Rodríguez-Moreno, 2017. "Did the bank capital relief induced by the supporting factor enhance SME lending?," Working Papers 1746, Banco de España;Working Papers Homepage.
    7. repec:eee:finana:v:53:y:2017:i:c:p:48-65 is not listed on IDEAS
    8. repec:nbp:nbpbik:v:48:y:2017:i:2:p:119-148 is not listed on IDEAS
    9. J-S.Mésonnier & C. O’Donnell & O. Toutain, 2017. "The Interest of Being Eligible," Working papers 636, Banque de France.
    10. Olivier De Jonghey & Hans Dewachter & Steven Ongenax, 2016. "Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions," Working Paper Research 303, National Bank of Belgium.
    11. Sivec, Vasja & Volk, Matjaz, 2017. "Bank Response to Policy Related Changes in Capital Requirements," MPRA Paper 83058, University Library of Munich, Germany.
    12. Ingo Fender & Ulf Lewrick, 2016. "Adding it all up: the macroeconomic impact of Basel II and outstanding reform issues," BIS Working Papers 591, Bank for International Settlements.
    13. Ingo Fender & Ulf Lewrick, 2015. "Calibrating the leverage ratio," BIS Quarterly Review, Bank for International Settlements, December.
    14. García-Posada, Miguel & Marchetti, Marcos, 2016. "The bank lending channel of unconventional monetary policy: The impact of the VLTROs on credit supply in Spain," Economic Modelling, Elsevier, vol. 58(C), pages 427-441.
    15. Juan S. Mora-Sanguinetti & Marta Martínez-Matute & Miguel García-Posada, 2017. "Credit, crisis and contract enforcement: evidence from the Spanish loan market," European Journal of Law and Economics, Springer, vol. 44(2), pages 361-383, October.
    16. Natalya Martynova, 2015. "Effect of bank capital requirements on economic growth: a survey," DNB Working Papers 467, Netherlands Central Bank, Research Department.
    17. P. Andrade & C. Cahn & H. Fraisse & J-S. Mésonnier, 2015. "Can the Provision of Long-Term Liquidity Help to Avoid a Credit Crunch? Evidence from the Eurosystem's LTROs," Working papers 540, Banque de France.

    More about this item

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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