Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions

We analyze how time-varying bank-speci_c capital requirements a_ect banks' balance sheet adjustments as well as bank lending to the non-_nancial corporate sector. To do so, we relate Pillar 2 capital requirements to bank balance sheet data, a fully documented corporate credit register and _rm balance sheet data. Our analysis consists of three components. First, we examine how time-varying bank-speci_c capital requirements a_ect banks' balance sheet composition. Subsequently, we investigate how capital requirements a_ect the supply of bank credit to the corporate sector, both on the intensive and extensive margin, as well as for di_erent types of credit. Finally, we document how bank characteristics, _rm characteristics and the stance of monetary policy impact the relationship between bank capital requirements and credit supply.