The impact of changes in bank capital requirements

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 18 November 2022

Staff Working Paper No. 1,004

By Akash Raja

This paper studies how banks respond to capital regulation using confidential data on bank‑specific requirements in the UK. Banks do adjust their capital ratios following changes in requirements, though the pass-through is incomplete. While they lower capital ratios following a loosening of requirements, they eat into their existing capital buffers when facing tighter regulatory minima. I find that the main adjustment channels have changed since the financial crisis. Prior to the crisis, banks responded to changes in their requirements through capital accumulation and loan quantities; however, they have since then primarily altered the risk composition of assets.

The impact of changes in bank capital requirements