The International Transmission of Bank Capital Requirements: Evidence from the United Kingdom

39 Pages Posted: 24 Apr 2014

See all articles by Shekhar S. Aiyar

Shekhar S. Aiyar

International Monetary Fund (IMF)

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

John Hooley

International Monetary Fund (IMF)

Yevgeniya Korniyenko

Bank of England

Tomasz Wieladek

Bank of England

Date Written: April 17, 2014

Abstract

We use data on UK banks’ minimum capital requirements to study the impact of changes to bank-specific capital requirements on cross-border bank loan supply from 1999 Q1 to 2006 Q4. By examining a sample in which each recipient country has multiple relationships with UK-resident banks, we are able to control for demand effects. We find a negative and statistically significant effect of changes to banks’ capital requirements on cross-border lending: a 100 basis point increase in the requirement is associated with a reduction in the growth rate of cross-border credit of 5.5 percentage points. We also find that banks tend to favour their most important country relationships, so that the negative cross-border credit supply response in ‘core’ countries is significantly less than in others. Banks tend to cut back cross-border credit to other banks (including foreign affiliates) more than to firms and households, consistent with shorter maturity, wholesale lending which is easier to roll off and may be associated with weaker borrowing relationships.

Keywords: Cross-border lending, loan supply, capital requirements, international transmission.

JEL Classification: G21, G18, E51, E52, E44.

Suggested Citation

Aiyar, Shekhar S. and Calomiris, Charles W. and Hooley, John and Korniyenko, Yevgeniya and Wieladek, Tomasz, The International Transmission of Bank Capital Requirements: Evidence from the United Kingdom (April 17, 2014). Bank of England Working Paper No. 497, Available at SSRN: https://ssrn.com/abstract=2428184 or http://dx.doi.org/10.2139/ssrn.2428184

Shekhar S. Aiyar

International Monetary Fund (IMF) ( email )

700 19th Street NW - HQ 5-403
Washington, DC 20431
United States
202-623-8638 (Phone)

Charles W. Calomiris

Columbia University - Columbia Business School ( email )

3022 Broadway
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New York, NY 10027
United States
212-854-8748 (Phone)
212-316-9219 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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John Hooley

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Yevgeniya Korniyenko

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Tomasz Wieladek (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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