Balance sheet

Incentive

Capital (architecture)

Financial system

Economic capital

Engineering

Financial capital

Microeconomics

Pillar

China

Archaeology

Economics

Business

Capital adequacy ratio

Political science

Capital requirement

Monetary economics

Human capital

Structural engineering

Economic growth

Finance

Profit (economics)

Chinese financial system

Bank credit

History

Journal of Corporate Finance

We analyze how time-varying bank-specific capital requirements affect bank lending to the non-financial corporate sector as well as banks' balance sheet adjustments. To do so, we relate Pillar 2 capital requirements to a comprehensive corporate credit register coupled with bank and firm balance sheet data. Our analysis consists of three components. First, we investigate how capital requirements affect the supply of bank credit to the corporate sector, both on the intensive and extensive margin, as well as for different types of credit. Subsequently, we document how bank and firm characteristics as well as the monetary policy stance impact the relationship between bank capital requirements and the supply of credit. Finally, we examine how time-varying bank-specific capital requirements affect banks' balance sheet composition.

Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions