The Impact of Capital Requirements on Bank Lending

2014 ◽  
Author(s):  
Jonathan Bridges ◽  
David Gregory ◽  
Mette Nielsen ◽  
Silvia Pezzini ◽  
Amar Radia ◽  
...  
Keyword(s):  
Bank Lending ◽  
Capital Requirements ◽  
The Impact

scholarly journals The Impact of CRD IV on Bank Lending

2019 ◽  
Vol 8 (2) ◽  
pp. 203-217
Author(s):  
Matias Huhtilainen
Keyword(s):  
Bank Lending ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Bank Credit ◽  
Bank Profitability ◽  
Consistent Finding ◽  
Loan Supply ◽  
The Impact ◽  
The Relationship ◽  
Crd Iv

This study addresses the post-financial crisis EU banking regulation reform CRD IV. The specific focus is on the relationship between increased capital requirements and the subsequent change in both supply and the price of bank credit. This study employs a twofold data consisting of a panel of Finnish unlisted savings and cooperative banks’ key figures over the period 2002-2018 and a representative survey conducted with personnel of Finnish institutions. In addition to the consistent finding in regards to the effect of bank profitability as well as fairly consistent findings in regards to the effect of bank size and GDP growth, the key finding suggests a slight decrease in loan supply under the CRD IV.

Regulatory capital requirements: can the banks mitigate the risk through lending rates?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Vighneswara Swamy
Keyword(s):  
Commercial Banks ◽  
Bank Lending ◽  
Capital Requirements ◽  
Basel Iii ◽  
Content Type ◽  
Percentage Point Increase ◽  
Point Increase ◽  
Lending Rate ◽  
Lending Rates ◽  
The Impact

PurposeThe purpose of this study is to investigate the impact of the new capital requirements under the Basel III framework on bank lending rates.Design/methodology/approachBy constructing a stylized representative bank's financial statements, the authors show that the higher cost associated with a 1-percentage increase in the capital ratio can be recovered by increasing the bank lending rate.FindingsThe results indicate that in the case of scheduled commercial banks, a 1-percentage-point increase in the capital ratio can be recovered by a commensurate increase in the bank lending rate by 16 basis points and would go up to an extent of 94 basis points for a 6-percentage point increase assuming that the risk-weighted assets are unchanged.Practical implicationsThe results assume significance as the estimations for the scenarios of changes in risk-weighted assets change in return on equity and the cost of debt. Given the enormous significance of the impact of Basel III on banks, this research outcome benefits the practitioners in the industry and researchers.Originality/valueThis study contributes to the literature on bank regulation and risk management with a newer and topical approach for quantification of the impacts of new regulatory standards. Another contribution of this study is that it considers three different groupings of banks: (1) scheduled commercial banks; (2) public sector banks and (3) private banks in Indian banking. This is the first of its kind in the context of studying Indian banking.

scholarly journals The Effects of Regulatory Capital Requirements and Ownership Structure on Bank Lending in Emerging Asian Markets

2019 ◽  
Vol 12 (3) ◽  
pp. 142 ◽  
Author(s):  
Yasmeen Akhtar ◽  
Ghulam Mujtaba Kayani ◽  
Tahir Yousaf
Keyword(s):  
Ownership Structure ◽  
Bank Lending ◽  
Capital Requirements ◽  
Managerial Ownership ◽  
Regulatory Capital ◽  
Loan Portfolios ◽  
Bank Ownership ◽  
Capital Ratios ◽  
Lending Activity ◽  
The Impact

This study examines the impact of regulatory capital requirements and ownership structure on bank lending in Emerging Asian Markets. The findings of the study imply that banks with excess capital are less affected by capital constraints and enjoy opportunities to extend their credit portfolios. The monitory policy indicator has the expected negative and significant impact on bank lending. In case of well-capitalized banks, the interaction between the excess capital and monetary policy indicator has a significant positive relation with bank lending, which means that banks with excess capital have capability to raise uninsured financing and shield their loan portfolios as compared to less-capitalized banks that reduce their lending in the period of monetary tightening. In the case of bank ownership structure, banks with excess capital ratios and ownership concentration lead towards an increase in lending activity. The findings also show that well-capitalized banks with managerial ownership tend to reduce lending which validates agency theory of corporate governance.

scholarly journals The Impact Of Basel III On Italian Banks Loan Rates: An Accounting-Based Approach

2012 ◽  
Vol 11 (11) ◽  
pp. 1269
Author(s):  
Pasquale Di Biase
Keyword(s):  
Interest Rates ◽  
Banking System ◽  
Bank Lending ◽  
Capital Requirements ◽  
Bank Loans ◽  
Bank Loan ◽  
Basel Iii ◽  
Baseline Scenario ◽  
Percentage Point Increase ◽  
The Impact

This paper empirically investigates the impact of the new capital requirements imposed under Basel III on bank lending rates.A general accounting equilibrium model is developed in order to map the change in the average interest rate on bank loans which is required to preserve the economic performance and the market value of financial institutions under the new regulatory framework.The study refers to the Italian banking system. According to our estimates, the long-term impact of heightened capital requirements on bank loan rates is likely to be modest.In our baseline scenario, we find evidence that each percentage point increase in the capital ratio can be recovered by increasing interest rates with which borrowers are charged by only 5.75 basis points. We conclude that the Italian banking system should be able to adjust to the higher capital requirements imposed by Basel III through a set of operative and commercial levers with no significant effects on the cost of credit for companies and consumers.

Capital requirements, institutional quality and credit crunch in the MENA region

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ali Awdeh ◽  
Chawki EL-Moussawi
Keyword(s):  
Institutional Environment ◽  
Institutional Quality ◽  
Political Stability ◽  
Bank Lending ◽  
Capital Requirements ◽  
Bank Credit ◽  
Credit Crunch ◽  
Mena Region ◽  
Content Type ◽  
The Impact

PurposeThe introduction of Basel capital adequacy standards (I, II and III) has provoked a large body of empirical and theoretical literature that aimed to detect the consequences of risk-based capital rules on bank lending behaviour and credit availability (and the possible emergence of the credit crunch phenomenon), and came up with divergent conclusions. This study aims at participating in this continuous debate but detecting the applicability of the credit crunch theory in the MENA region, taking into consideration the impact of the institutional environment, which may play a role in mitigating the supply-side credit crunch.Design/methodology/approachThis study exploits the Fixed Effects method on a dataset of 210 banks from 14 MENA countries over the period 1999–2016. The paper exploits the percentage change in bank credit as a dependent variable, capital requirements and three institutional quality variables as explanatory variables, in addition to a set of micro- and macro-economic variables.FindingsThe study finds that the implementation of higher capitalisation ratios does participate in a significant decline in bank credit supply. Additionally, by testing the impact of institutional factors on bank lending, it reveals that good governance and political stability encourage banks to extend credit and soften the credit crunch, while higher level of financial freedom discourages banks from expanding loan supply and even magnifies the decline of credit following tightening capital requirements.Practical implicationsThis paper provides very important insight for MENA policymakers and bank regulators by highlighting the importance of the institutional environment factors in amplifying or softening the effect of higher capital requirements in their economies.Originality/valueIn addition to examining an understudied sample of countries, this paper's originality and value added are represented mainly by testing the impact of institutional environment and governance level on bank lending behaviour.

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