This paper explores the financing difficulties of small, innovative firms. Those firms, associated with high costs and high levels of risk, have greater financing problems in the context of the financial crisis and new capital requirements. Based on a critical analysis of new prudential regulations introduced by Basel III and Solvency II, this article investigates the impact of higher capital requirements on the cost of funding, loan growth, and venture capital financing. The results suggest that new capital and liquidity rules may lead banks to increase their lending rates and reduce their credit to small innovative firms (a credit crunch). Furthermore, we show that the new regulatory framework for banks and insurance companies is likely to result in an equity crunch.
JEL Codes: G21, G24, G28, M13, O32