Capital requirements impact collateral demands – BoE paper

Front of Bank of England London
The Bank of England

Capital requirements may impact the flow of credit to small businesses by encouraging banks to demand collateralised loans, according to research published on February 1 by the Bank of England.

Hans Degryse, Artashes Karapetyan and Sudipto Karmakar study a 2011 action by the European Banking Authority that required banks to meet higher capital ratios. The shock only affected some banks, presenting the authors with a “quasi-natural experiment”.

The authors find affected banks become more likely

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