LONDON Banks have long argued that tougher rules on their capital buffers hurt their lending, and new research from the Bank of England seems to back their case, at least some of the time.
A group of economists said in a paper published by the Bank on Friday that loan growth typically falls in the first year following a regulatory change and recovers within three years.
Loans for commercial real estate fall the fastest when new capital requirements are introduced, followed by other corporate and mortgage lending, the paper found.
After the financial crisis, former Bank Governor Mervyn King rebuffed suggestions that tougher capital standards for banks led to lower lending, arguing that their healthier balance sheets made them stronger and better able to provide credit.
The research looked at the effects of changes of capital requirements for individual British banks between 1990 and 2011 rather than broader sector-wide rules.
"As a result, the results from our study cannot be directly mapped across to how changing capital requirements are likely to affect bank capital and lending in a macroprudential framework," the paper said.
The new Bank paper can be read in full here