What rules limit how much banks can lend and how central banks explain them?
Research question: What capital, liquidity and reserve rules limit how much deposit creation banks can do from lending, and how do central banks describe those limits in their own publications?
The verified facts cover capital and liquidity rules but say nothing about reserve requirements or how deposits are created, so the answer is only partly supported. The BIS monitoring report says Group 1 banks' average Common Equity Tier 1 ratio was 13.9% 6, their fully phased-in Tier 1 leverage ratio averages 6.0% 10, and their weighted NSFR was well above 100% at end-December 2025 11. Their average Liquidity Coverage Ratio improved slightly while the NSFR decreased slightly 9. On lending effects, one 2010 study estimated that a one percentage point rise in the capital ratio would need about 15 basis points of higher lending spreads 1, a 2025 Canadian study found higher capital requirements reduced gross lending volumes 2, and a separate source's figure title says capital requirements have had little influence on lending rates 3. The sources also describe possible social costs if capital rules unduly limit lending 4, and say short-term adjustment costs should be relatively easy to mitigate 8. None of the facts confirm that these are central bank publications, and the BIS is not a national central bank, so how central banks describe these limits is not established. The newest fact is dated 31 December 2025, about nine months before October 2026 6.
Sources
"The higher cost associated with a one percentage point increase in the capital ratio can be recovered by increasing lending spreads by 15 basis points for a representative bank."Mapping Capital and Liquidity Requirements to Bank Lending Spreads (2010)
"The results found that increases in Canadian regulatory bank capital requirement ratio led to a decrease in the volume of gross loan offered by Canadian banks to the non-financial sector, over the current year, considering macroeconomic control variables."Impact of Bank Regulatory Capital Requirements: On Canadian Banks' Gross Lending Volume (2025)
"Higher capital adequacy requirements have had little influence on bank lending rates"Figure 1.18 Higher capital adequacy requirements have had little influence on bank lending rates1
"Bank capital requirements would entail large social costs if they made resource allocation suboptimal and banking services costly by unduly limiting the banks’ ability to lend."Social Costs of Bank Capital Requirements in Relation to Lending Incentives (2012)
"To recover the additional cost of meeting the December 2009 proposal for the Net Stable Funding Ratio (NSFR), a representative bank would need to increase lending spreads by 24 basis points."Mapping Capital and Liquidity Requirements to Bank Lending Spreads (2010)
"Compared with June 2025, the average Common Equity Tier 1 (CET1) capital ratio under the current Basel III framework remained stable at 13.9% for the unbalanced sample of Group 1 banks."Basel III monitoring report - Bank for International Settlements
"Taking into account the fall in risk-weighted assets from holding more government bonds reduces this cost to 12 basis points or less."Mapping Capital and Liquidity Requirements to Bank Lending Spreads (2010)
"Short-term adjustment costs can still be large, but it should be relatively easy to mitigate the short-term effects."Social Costs of Bank Capital Requirements in Relation to Lending Incentives (2012)
"The average Liquidity Coverage Ratio (LCR) of Group 1 banks improved slightly, while the Net Stable Funding Ratio (NSFR) decreased slightly."Basel III monitoring report - Bank for International Settlements
"For the unbalanced data set at the end-December 2025 reporting date, the average fully phased-in final Basel III Tier 1 leverage ratios are 6.0% for Group 1 banks, 5.9% for G-SIBs and 6.8% for Group 2 banks."Basel III monitoring report - Bank for International Settlements
"At end-December 2025 the weighted average NSFR for Group 1 banks in each of the three regions was well above 100% and stable compared with the previous period."Basel III monitoring report - Bank for International Settlements