Skip to main page content
U.S. flag

An official website of the United States government

Dot gov

The .gov means it’s official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.

Https

The site is secure.
The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

Access keys NCBI Homepage MyNCBI Homepage Main Content Main Navigation
. 2022;61(2):135-167.
doi: 10.1007/s11149-022-09448-5. Epub 2022 Apr 9.

Does capital-based regulation affect bank pricing policy?

Dominika Ehrenbergerová  1 , Martin Hodula  2   3 , Zuzana Gric  4
Affiliations

Does capital-based regulation affect bank pricing policy?

Dominika Ehrenbergerová et al. J Regul Econ. 2022.

Abstract

This paper tests whether a series of changes to capital requirements transmitted to a change to banks' pricing policy. We compile a rich bank-level supervisory dataset covering the banking sector in the Czech Republic over the period 2004-2019. We estimate that the changes to the overall capital requirements did not force banks to alter their pricing policy. The impact on bank interest margins and loan rates is found to lie in a narrow range around zero irrespective of loan category. Our estimates allow us to rule out effects even for less-capitalised banks and small banks. The results obtained contradict estimates from other studies reporting significant transmission of capital regulation to lending rates and interest margins. We therefore engage in a deeper discussion of why this might be the case. Our estimates may be used in the ongoing discussion of the benefits and costs of capital-based regulation in banking.

Supplementary information: The online version contains supplementary material available at 10.1007/s11149-022-09448-5.

Keywords: Bank pricing policy; Capital requirements; Interest margins; Loan rates.

PubMed Disclaimer

Figures

Fig. 1
Fig. 1
Timeline of the Capital-Based Measures in the Czech Republic. Note: Pillar 2 represents the average across quarters and banks Source: Czech National Bank
Fig. 2
Fig. 2
Bank-Level Overall Capital Requirements (%). Note: Overall regulatory capital requirements for 14 banking groups operating in the Czech Republic, anonymised Source: Czech National Bank
See this image and copyright information in PMC

Similar articles

See all similar articles

References

    1. Acharya, V. V., Bergant, K., Crosignani, M., Eisert, T., & McCann, F. J. (2019). The anatomy of the transmission of macroprudential policies. Available at SSRN 3388963.
    1. Admati, A. R., DeMarzo, P. M., Hellwig, M., Pfleiderer, P. (2010). Fallacies, irrelevant facts, and myths in the discussion of capital regulation: Why bank equity is not expensive. Stanford gsb research paper no. 2063, Stanford University.
    1. Aiyar S, Calomiris CW, Wieladek T. Does macro-prudential regulation leak? evidence from a UK policy experiment. Journal of Money, Credit and Banking. 2014;46(s1):181–214. doi: 10.1111/jmcb.12086. - DOI
    1. Allen F, Jackowicz K, Kowalewski O, Kozłowski Ł. Bank lending, crises, and changing ownership structure in central and eastern European countries. Journal of Corporate Finance. 2017;42:494–515. doi: 10.1016/j.jcorpfin.2015.05.001. - DOI
    1. Ambrocio, G., Hasan, I., Jokivuolle, E., & Ristolainen, K. (2020). Are bank capital requirements optimally set? evidence from researchers’ views. Journal of Financial Stability,50, 1–15.

LinkOut - more resources