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Capital Requirements in Light of Monetary Tightening

Author

Listed:
  • Aurélien Espic

    (Banque de France, Aix Marseille University, CNRS and AMSE)

  • Lisa Kerdelhué

    (Banque de France)

  • Julien Matheron

    (Banque de France)

Abstract

In 2021, euro-area inflation surged, prompting the European Central Bank to reverse its monetary stance. This paper argues that this shift did not generate significant financial stress, partly because of the bank capital requirements introduced in the 2010s. We develop a framework to assess their effects over the business cycle. Although capital requirements remained broadly stable, they shaped the transmission of the structural shocks underlying this episode. We find that while these requirements modestly constrained post-COVID growth, they successfully prevented the materialization of risks. Overall, capital requirements strengthened the economy’s resilience to adverse shocks at a relatively low macroeconomic cost.

Suggested Citation

  • Aurélien Espic & Lisa Kerdelhué & Julien Matheron, 2026. "Capital Requirements in Light of Monetary Tightening," International Journal of Central Banking, International Journal of Central Banking, vol. 22(2), pages 295-397, April.
    • Handle: RePEc:ijc:ijcjou:y:2026:q:2:a:4
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    File URL: https://www.ijcb.org/journal/v22n2/capital-requirements-light-monetary-tightening
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    Cited by:

    1. is not listed on IDEAS
    2. Hempell, Hannah S. & Silva, Fatima & Scalone, Valerio & Cornacchia, Wanda & Di Virgilio, Domenica & Palligkinis, Spyros & Velez, Anatoli Segura & Borkó, Tamás & Espic, Aurélien & Garcia, Salomón & Hei, 2024. "Implications of higher inflation and interest rates for macroprudential policy stance," Occasional Paper Series 358, European Central Bank.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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