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Discussion Paper Details

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Title: The Real Effects of Capital Requirements and Monetary Policy: Evidence from the United Kingdom

Author(s): Filippo De Marco and Tomasz Wieladek

Publication Date: May 2016

Keyword(s): Capital requirements, Firm-level real effects, prudential and monetary policy, relationship lending and SMEs

Programme Area(s): Financial Economics and Monetary Economics and Fluctuations

Abstract: We study the effects of bank-specific capital requirements on Small and Medium Enterprises (SMEs) in the UK from 1998 to 2006. Following a 1% increase in capital requirements, SMEs' asset growth contracts by 6.9% in the first year of a new bank-firm relationship, but the effect declines over time. We also compare the effects of capital requirements to those of monetary policy. Monetary policy only affects firms with higher credit risk and those borrowing from small banks, whereas capital requirements affect both. Capital requirement changes, instead, do not affect firms with alternative sources of finance, but monetary policy shocks do.

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Bibliographic Reference

De Marco, F and Wieladek, T. 2016. 'The Real Effects of Capital Requirements and Monetary Policy: Evidence from the United Kingdom'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11265