NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Shekhar Aiyar

International Monetary Fund
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Washington DC 20431

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NBER Working Papers and Publications

February 2012Does Macro-Pru Leak? Evidence from a UK Policy Experiment
with Charles W. Calomiris, Tomasz Wieladek: w17822
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 u...
 
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