The Effect of Capital Requirement Regulations on the Transmission of Monetary Policy: Evidence from Austria

• Abstract

  This paper analyzes the role of banks’ regulatory capitalization in the transmission of monetary policy. We use a confidential dataset for Austrian banks spanning from the first quarter of 1997 to the fourth quarter of 2003. We find evidence that Austrian banks react in an asymmetric way to monetary policy depending on their regulatory excess capitalization, i.e. low capitalized banks react more restrictively to a monetary tightening than their highly capitalized peers.

• Keywords

  Monetary Policy Transmission, Bank Lending Channel, Bank Capital Channel, Austria

• JEL classification

  E40, E50