Do strategic interaction effects drive excess capital financing of banks?

Economic Memo - December 2021 - No. 9

Authors Nelson, Genevieve; Jørgensen, Mia Renee Herløv
Subject Macroprudential policy; Connectedness
Type Economic Memo
Year 2021
Published 10 December 2021
Abstract icon 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.