Effect of the countercyclical capital buffer on firm loans : Evidence from Germany

Abstract

We use confidential loan-level data from the European Central Bank to investigate how changes in the countercyclical capital buffer requirement in Germany affect lending to firms. We find evidence showing that tightening the countercyclical capital buffer leads German banks to reduce the volume of corporate loans and increase the price of new loans. These effects take place immediately after the announcement, given 12 months before the change was implemented. Importantly, we find that the reduction in credit availability notably affects small and medium sized enterprises, which experience both a significant decrease in available credit and an increase in credit costs. In contrast, large firms are not affected.