Working Paper Revision

Macroprudential Regulation and Lending Standards

Abstract: We examine how macroprudential capital requirements interact with competition between banks and non-banks to shape lending standards. Banks have private information and benefit from deposit insurance, while non-banks lack such advantages but are less regulated. We show that higher capital requirements raise banks' incentives to screen, tightening lending standards despite a decline in lender protections at the contract level. Non-bank competition does not erode but rather strengthens aggregate standards by crowding out riskier bank lending. Optimal capital regulation is lower in the presence of non-banks. Our analysis helps rationalize dynamics in leveraged loan and private credit markets.

JEL Classification: G01; G21; G28;

https://doi.org/10.17016/FEDS.2020.086r1

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2025-06-25

Number: 2020-086r1

Note: Revision

Related Works

• Working Paper Revision (2025-06-25) : You are here.
• Working Paper Original (2020-10-09) : Banks, Non Banks, and Lending Standards