NBER Working Papers by Tomasz Wieladek

The regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro-prudential regimes internationally. For such regulation to be effective in controlling the aggregate supply of credit it must be the case that: (i) changes in capital requirements affect loan supply by regulated banks, and (ii) unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks. This paper examines micro evidence—lacking to date—on both questions, using a unique dataset. In the UK, regulators have imposed time-varying, bank-specific minimum capital requirements since Basel I. It is found that regulated banks (UK-owned banks and resident foreign subsidiaries) reduce lending in response to tighter capital requirements. But unr...

We provide the first empirical tests for financial protectionism, defined as a nationalistic change in banks’ lending behaviour, as the result of public intervention, which leads domestic banks either to lend less or at higher interest rates to foreigners. We use a bank-level panel data set spanning all British and foreign banks providing loans within the United Kingdom between 1997Q3 and 2010Q1. During this time, a number of banks were nationalised, privatised, given unusual access to loan or credit guarantees, or received capital injections. We use standard empirical panel-data techniques to study the “loan mix,” domestic (British) loans of a bank expressed as a fraction of its total loan activity. We also study effective short-term interest rates, though our data set here is much sma...