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Published on: December 10, 2014
Does capital-based regulation affect bank pricing policy?
Dominika Ehrenbergerová1, Martin Hodula2,3, Zuzana Gric4
1Czech National Bank and Charles University, Prague 1, Czech Republic.
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.
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