International Monetary Fund
700 19th Street, N.W.
Washington DC 20431
Institutional Affiliation: International Monetary Fund
Information about this author at RePEc
NBER Working Papers and Publications
|February 2012||Does Macro-Pru Leak? Evidence from a UK Policy Experiment|
with Charles W. Calomiris, Tomasz Wieladek: w17822
The regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro-prudential regimes internationally. For such regulation to be effective in controlling the aggregate supply of credit it must be the case that: (i) changes in capital requirements affect loan supply by regulated banks, and (ii) unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks. This paper examines micro evidence--lacking to date--on both questions, using a unique dataset. In the UK, regulators have imposed time-varying, bank-specific minimum capital requirements since Basel I. It is found that regulated banks (UK-owned banks and resident foreign subsidiaries) reduce lending in response to tighter capital requirements. But u...