Working Paper: CEPR ID: DP13331
Authors: Hans Degryse; Artashes Karapetyan; Sudipto Karmakar
Abstract: We study the impact of higher capital requirements on banks’ decisions to grant collateralized rather than uncollateralized loans. We exploit the 2011 EBA capital exercise, a quasi-natural experiment that required a number of banks to increase their regulatory capital but not others. This experiment makes secured lending more attractive vis-à-vis unsecured lending for the affected banks as secured loans require less regulatory capital. Using a loan-level dataset covering all corporate loans in Portugal, we identify a novel channel of higher capital requirements: relative to the control group, treated banks require loans to be collateralized more often after the shock, but less so for relationship borrowers. This applies in particular for collateral that saves more on regulatory capital.
Keywords: capital requirements; collateral; relationship lending; lending technology
JEL Codes: G21; G28; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Treated banks (G21) | Increased likelihood of asking for collateral (G51) |
| Treated banks (G21) | Increased likelihood of asking for collateral (Transactional borrowers) (G21) |
| Treated banks (G21) | Less likely to increase collateral requirements (Relationship borrowers) (G21) |
| Treated banks (G21) | Collateral composition effect (Lower risk weights) (G32) |
| Treated banks (G21) | Less likely to require collateral (Relationship borrowers) (G21) |
| Banks with more intense treatment (G21) | Increased likelihood of requiring collateral (G33) |
| Banks with more intense treatment (G21) | Less likely to require collateral (Relationship borrowers) (G21) |