Eric Girardin: eric.girardin[at]univ-amu.fr
Christelle Lecourt: christelle.lecourt[at]univ-amu.fr
Jean-François Carpantier: jean-francois.carpantier[at]univ-amu.fr
We measure the impact of bank capital requirements on corporate borrowing and investment using loan-level data. The Basel II regulatory framework makes capital requirements vary across both banks and across firms, which allows us to control for time varying firm-level risk and bank-level credit supply shocks. We find that a 1 percentage point increase in capital requirement reduces lending by 9%. Firms can attenuate this reduction by substituting borrowing across banks, but only partially. The resulting reduction in borrowing capacity impacts investment: for firms whose effective capital requirement increases by 1 percentage point, fixed assets are reduced by 2.5%.