Date&Time: September 16, 2021, Thursday, 10:30-12:00 (JST)
Venue: Zoom Web Seminar
Speaker: Attavit Prachakseranee (Ph.D. student, Graduate School of Economics, Kyoto University)
Title: Capital Requirements and Lending: The Case of D-SIB Capital Buffer in Thailand
Abstract: The interest in how capital affects lending started as early as in 1990 when the “credit crunch” in the United States occurred due to bank capital depletion. The literature on capital and lending broadly agrees that a negative shock to capital prompts a decrease in lending, but still faces utmost difficulty in establishing causal effects due to the endogeneity problem caused by the simultaneity between lending-related variables and capital-related variables. The endogeneity in this context is driven by unobservable factors such as risks and demand and supply factors. In this case, using proxy variables can only mitigate the endogeneity to an extent, and thus, using an approach which controls for unobservables is more appropriate. Using the implementation of the domestic systemically important bank (D-SIB) buffer in Thailand as a case study, this study gives a fresh perspective to the literature by using synthetic controls, an approach which has not been used in the literature to create counterfactuals. The main finding of this study suggests that the D-SIBs responded to the D-SIB buffer by decreasing loan growth, consistent with the literature, but only in the very short-run. Subsequently, loan growth slightly recovered by the end of the treatment period. The study also finds that the decline in loan growth was mainly driven by business loans, the asset class with relatively high capital requirements. Furthermore, it finds no significant effects on capital and risk-weighted assets.
Keywords: Basel III, Capital Requirements, Bank Lending, Synthetic Controls
Chair: Hisaki Kono (Graduate School of Economics, Kyoto University)
Contact: Tomohiro Machikita (email@example.com)