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  4. The Pass-through of Bank Capital Requirements to Corporate Lending Spreads
 
working paper

The Pass-through of Bank Capital Requirements to Corporate Lending Spreads

Lambertini, Luisa
•
Bichsel, Robert
•
Mukherjee, Abhik  
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May 27, 2019

This paper studies the impact of higher bank capital requirements on corporate lending spreads. We conduct an empirical analysis using granular bank- and loan-level data for Switzerland. Overall, we nd a positive relationship between capital ratios, actual and required, and lending spreads. The relationship is statistically signicant but economically small. According to our results, a one-percentage point increase of capital ratios (risk- weighted) leads to an increase in lending spreads between 0 and 5 basis points. This gure is higher - between 5 and 20 basis points - for unweighted capital ratios (leverage ratios), partly but not only re ecting scaling eects. We nd support in favor of gradual phasing-in of new requirements as banks with capital shortfalls relative to their short-run regulatory requirements charge higher spreads relative to institutions with surpluses while the eects are weaker for look-through capital shortfalls. Holding additional capital when requirements are raised is associated with lower spreads vis-a-vis peers.

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BLMW_May_2019.pdf

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