Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229063
Authors: 
Dautovic, Ernest
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2449
Abstract: 
The paper evaluates the impact of a phased-in introduction of capital requirements on equity, risk-taking, and probability of default for a sample of European systemically important banks. Contrary to the case of a one-off introduction of capital requirements, this study does not find evidence of deleveraging through asset sales. A phased-in tightening promotes adjustment to lower leverage via an increase in equity thereby improving resilience and loss absorption capacity. The higher resilience comes at the cost of a portfolio reallocation towards riskier assets. Consistently with models on agency costs and gambling for resurrection, the risk-taking is driven by large and less profitable banks. The net impact on bank probabilities of default is positive albeit statistically insignificant, suggesting that risk-taking may crowd-out solvency.
Subjects: 
capital requirements
macroprudential policy
risk-taking
impact evaluation
difference-in-difference
JEL: 
E51
G21
G28
O52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4367-3
Document Type: 
Working Paper

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