{"title":"Unpacking the impact of the capital requirement regulation on non-performing loan dynamics in EU banks","authors":"Inga Urbonaviciute","doi":"10.1016/j.frl.2025.106810","DOIUrl":null,"url":null,"abstract":"In the wake of the global financial crisis, an increasing trend in non-performing loans has led to significant risks to financial stability. The 2014 Capital Requirements Regulation was introduced to tackle systemic vulnerabilities in the banking sector by setting an 8% risk-weighted capital requirement. This study demonstrates that stricter capital regulation increases the costs of holding risky assets, especially non-performing loans. This regulatory intervention also reduced the growth in the non-performing loan ratio. The study shows that the effect’s magnitude depends on the bank’s size and the extent of the non-performing loans held before the regulation. Finally, the regulatory impact continued for four years, gradually diminishing post-implementation.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"52 1","pages":""},"PeriodicalIF":7.4000,"publicationDate":"2025-01-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Finance Research Letters","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1016/j.frl.2025.106810","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
In the wake of the global financial crisis, an increasing trend in non-performing loans has led to significant risks to financial stability. The 2014 Capital Requirements Regulation was introduced to tackle systemic vulnerabilities in the banking sector by setting an 8% risk-weighted capital requirement. This study demonstrates that stricter capital regulation increases the costs of holding risky assets, especially non-performing loans. This regulatory intervention also reduced the growth in the non-performing loan ratio. The study shows that the effect’s magnitude depends on the bank’s size and the extent of the non-performing loans held before the regulation. Finally, the regulatory impact continued for four years, gradually diminishing post-implementation.
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