Does capital-based regulation affect bank pricing policy?

Authors

EHRENBERGEROVÁ Dominika HODULA Martin GRIC Zuzana

Year of publication 2022
Type Article in Periodical
Magazine / Source Journal of Regulatory Economics
MU Faculty or unit

Faculty of Economics and Administration

Citation
Web https://link.springer.com/article/10.1007/s11149-022-09448-5
Doi http://dx.doi.org/10.1007/s11149-022-09448-5
Keywords Bank pricing policy; Capital requirements; Interest margins; Loan rates
Description 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.

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