The Pass-through of Bank Capital Requirements to Corporate Lending Spreads

This paper studies the impact of higher bank capital requirements on corporate lending spreads. We conduct an empirical analysis using granular bank- and loan-level data for Switzerland. Overall, we nd a positive relationship between capital ratios, actual and required, and lending spreads. The relationship is statistically signicant but economically small. According to our results, a one-percentage point increase of capital ratios (risk- weighted) leads to an increase in lending spreads between 0 and 5 basis points. This gure is higher - between 5 and 20 basis points - for unweighted capital ratios (leverage ratios), partly but not only re ecting scaling eects. We nd support in favor of gradual phasing-in of new requirements as banks with capital shortfalls relative to their short-run regulatory requirements charge higher spreads relative to institutions with surpluses while the eects are weaker for look-through capital shortfalls. Holding additional capital when requirements are raised is associated with lower spreads vis-a-vis peers.