TY  - JOUR
AU  - Aiyar,Shekhar
AU  - Calomiris,Charles W.
AU  - Wieladek,Tomasz
TI  - Does Macro-Pru Leak? Evidence from a UK Policy Experiment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17822
PY  - 2012
Y2  - February 2012
UR  - http://www.nber.org/papers/w17822
L1  - http://www.nber.org/papers/w17822.pdf
N1  - Author contact info:
Shekhar Aiyar
International Monetary Fund
700 19th Street, N.W.
Washington DC 20431
E-Mail: SAiyar@imf.org

Charles W. Calomiris
Graduate School of Business
Columbia University
3022 Broadway Street, Uris Hall
New York, NY 10027
Tel: 212/854-8748
Fax: 212/316-9219
E-Mail: cc374@columbia.edu

Tomasz Wieladek
External MPC Unit
Bank of England
Threadneedle Street
EC2R 8AH
England
E-Mail: tomasz.wieladek@bankofengland.co.uk
M2  - featured in NBER digest on 2012-08-01
AB  - 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 unregulated banks (resident foreign branches) increase lending in response to tighter capital requirements on a relevant reference group of regulated banks. This “leakage” is substantial, amounting to about one-third of the initial impulse from the regulatory change.
ER  -