Tighter bank regulations could reduce loan supply, impacting economic growth.
The study looked at how changes in bank regulations affect the amount of money banks lend. They found that when banks have more capital than they need, they tend to lend more money. But if regulations require banks to hold more capital, they might lend less. For example, a 1% increase in capital requirements in 2002 would have led to a 1.2% decrease in lending after four years. This shows that stricter regulations can make it harder for businesses and individuals to get loans.