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Mikael Juselius
- 4 December 2025
- WORKING PAPER SERIES - No. 3161Details
- Abstract
- We employ 68 quarters of data – including from non-public supervisory sources – to study how 17 US and 17 euro-area banks balance the risk of breaching regulatory requirements against the cost of maintaining and speedily restoring “management” buffers. We find that steady-state management buffer targets systematically declined and regulatory risk tolerance (RRT) rose following the Great Financial Crisis, especially at banks experiencing a stronger increase in capital requirements. As a sign that RRT is a conscious choice, banks facing more volatile management buffer shocks set higher management buffer targets. High-RRT banks tend to respond to a depletion of their management buffers by cutting lending, whereas low-RRT banks reduce the riskiness but not the volume of their assets — thus highlighting real-economy effects of capital management strategies.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G31 : Financial Economics→Corporate Finance and Governance→Capital Budgeting, Fixed Investment and Inventory Studies, Capacity