Economic Memo provides insight into the analysis work being performed by Danmarks Nationalbank’s employees. For example, Economic Memo contains background analyses and method descriptions. The series is primarily targeted at people who already have knowledge of economic and financial analyses.

Financial stability and financial risks

Do strategic interaction effects drive excess capital financing of banks?

In this memo we find empirical evidence consistent with the hypothesis that banks act strategically to finance themselves through similar levels of excess capital to their competitors. We find that this channel is a significant driver of banks’ choice of excess capital but not the most important one.