The regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro …-prudential regimes internationally. For such regulation to be effective in controlling the aggregate supply of credit it must be the case … credit are unable to offset changes in credit supply by affected banks. This paper examines micro evidence--lacking to date …

The regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro …-prudential regimes internationally. For such regulation to be effective in controlling the aggregate supply of credit it must be the case … credit are unable to offset changes in credit supply by affected banks. This paper examines micro evidence--lacking to date …

of smoothing the credit cycle are central elements of forthcoming macroprudential regimes internationally. For such … regulation to be effective in controlling the aggregate supply of credit: (i) changes in capital requirements need to affect loan … supply by regulated banks, and (ii) substitute sources of credit should not fully offset changes in credit supply by affected …