ECB paper models ‘state-dependent’ impact of capital ratios

Model simulates ratio changes’ effects on credit supply in different macro-financial conditions

Eurotower, Frankfurt, home to ECB banking supervision
The European Central Bank headquarters, Frankfurt
Photo: ECB

A working paper published by the European Central Bank offers a theoretical model for how regulatory changes in banks’ capital requirements affect credit supply.

In The state-dependent impact of changes in bank capital requirements, Jan Hannes Lang and Dominik Menno say they are addressing a gap in the theoretical literature. Empirical research has shown that the impact of changing banks’ capital requirements differs according to lenders’ conditions and the macro-financial environment, they say

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