Bank capital requirements are based on a mix of market values and book values. We investigate the effects of a policy … banking organizations. Our analysis is based on security-level data on individual bank portfolios matched to bond …

drive loan default rate away from expected, and have an impact on both firm and bank's balance sheet via the financial … contract. Low bank capital position can create strong credit supply contraction, and have a significant effect on business … cycle dynamics. -- Bank capital regulation ; banking instability ; financial friction ; business cycle …