The countercyclical capital buffer and the composition of bank lending

Do targeted macroprudential measures impact non-targeted sectors too? We answer this question by investigating the compositional changes in the supply of credit by Swiss banks, exploiting their differential exposure to the activation in 2013 of the countercyclical capital buffer (CCyB) which targeted banks’ exposure to residential mortgages. We find that the additional capital requirements stemming from the activation of the CCyB causes higher growth in banks’ commercial lending. While banks lend more to all categories of firms, including larger corporate borrowers in the syndicated loan market, smaller and riskier firms are the primary beneficiaries of the new macroprudential measure. However, the interest rates and other costs of obtaining credit for these firms increase as well.