Abstract: A key element of the Basel III reforms are stricter capital requirements, which have been implemented with varying degrees of stringency across jurisdictions. We examine the impact of these requirements on bank profitability in the US and Europe between 2019 and 2024. We find no evidence that higher capital ratios or requirements negatively affect profitability. However, our results indicate that international differences in capital requirements can influence the profitability of banks that operate globally: Since capital requirements in a jurisdiction apply only to domestic banks and foreign subsidiaries, foreign banks operating through cross-border or branch-based activities may gain a competitive advantage. Nevertheless, the effect appears to be limited to the subsample of German significant institutions (SIs). Moreover, our analysis of policy scenarios based on the estimated spillover effects suggests that lowering capital requirements is not an effective strategy for improving bank profitability and could even be detrimental if reciprocated by foreign jurisdictions.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5713084

Abstract: We study product innovation in the UK mortgage market by analysing when and how attributes outside the traditional structure of mortgage contracts become pricing relevant. To do so, we develop a stylised framework that treats mortgage products as structured bundles of attributes, focusing on the two-part tariff, comprising interest rates and fees, to infer innovation from pricing patterns. Our empirical strategy first uses transaction-level data and exploits within-product variations over time to detect when new product features affect pricing, which we apply to the case of green mortgages. Matching Energy Performance Certificates (EPCs) to UK mortgage originations, we show that EPCs become pricing-relevant in 2018, with lenders starting to offer pricing discounts for loans to buy properties with higher energy efficiency. We also use offer-level data on advertised green products to precisely estimate pricing discounts. We detect considerable green discounts, which reach up to 15 basis points in 2022. Mortgages against high EPC properties are concentrated in new buildings, suggesting relaxed credit constraints and increased housing investment, with implications for the broader economy.

https://www.bankofengland.co.uk/working-paper/2026/product-innovation-in-the-uk-mortgage-market-the-case-of-green-mortgages#:~:text=We%20study%20product%20innovation%20in,we%20show%20that%20EPCs%20become

Abstract: This study analyses, from both a theoretical and empirical perspective, whether issuing green bonds improves companies’ environmental performance. The theoretical part develops a model with information asymmetries between investors and issuing companies, which can choose between polluting and clean technology. The empirical analysis, based on a global sample, compares the evolution of the ESG score – an indicator of environmental commitment – between companies that issue green bonds and those that do not. The theoretical model shows that the introduction of green bonds can bridge the information gap between companies and investors, lowering financing costs for companies that adopt clean technologies. Empirical estimates indicate that issuing green bonds has a greater impact on the environmental performance of the most polluting companies. The effect is more pronounced for bonds issued specifically to finance climate risk mitigation activities.

https://www.bancaditalia.it/pubblicazioni/temi-discussione/2025/2025-1499/index.html?com.dotmarketing.htmlpage.language=1#:~:text=This%20study%20analyses%2C%20from%20both,and%20those%20that%20do%20not

Abstract: This paper evaluates whether CO₂ emission levels or emission intensities are firm characteristics that drive Swiss firms’ stock returns. We show that standard characteristics such as size and the book-to-market equity ratio are more important determinants of firm-level stock returns than are CO₂ levels (intensities). Brown firms (high CO₂ levels or intensities) tend to be large and exhibit low book-to-market equity ratios, whereas their green counterparts are small and exhibit high book-to-market equity ratios. This explains why return differences between brown and green firms are statistically indistinguishable from zero after controlling for exposures to standard risk factors.

https://www.snb.ch/en/publications/research/working-papers/2025/working_paper_2025_13

Abstract: In this paper, we analyze the effects of the introduction of the liquidity coverage ratio (LCR) on banks’ funding behavior. We use changes in regulatory liquidity requirements in Switzerland as a natural experiment. Using data for the period before and after the LCR was applied for all banks in Switzerland, our dataset allows us to analyze how the introduction of the LCR affects the banks’ funding structure. Our results show that the LCR had its intended effects as banks reduced their exposure to short-term funding. At the same time, we find evidence for optimization of the LCR by banks. Banks optimize their LCR by extending the maturities of liabilities slightly over 30 days, which leads to an improvement in the LCR by 10 percentage points on average. Our results imply that it makes sense to complement the 30-day LCR with longer-term liquidity requirements to reduce cliff risks.

https://www.snb.ch/en/publications/research/working-papers/2025/working_paper_2025_18