We measure the impact of bank capital requirements on corporate borrowing, investment,
and employment using loan-level data. The Basel II regulatory framework makes capital
requirements vary across both banks and firms, which allows us to control for time-varying
firm-level risk and bank-level credit supply shocks. We find that a 1 percentage point
increase in capital requirements reduces lending by 2.3%–4.5%. Firms can attenuate this
reduction by substituting borrowing across banks, but only to a limited extent. The resulting …

We measure the impact of bank capital requirements on corporate borrowing and
expansion. We use French loan-level data and take advantage of the transition from Basel I
to Basel II. While under Basel I the capital charge was the same for all firms, under Basel II, it
depends in a predictable way on both the bank's model and the firm's risk. We exploit this
two-way variation to empirically estimate the sensitivity of bank lending to capital
requirement. This rich identification allows us to control for firm-level credit demand shocks …