Article ID Journal Published Year Pages File Type
5054941 Economic Modelling 2013 6 Pages PDF
Abstract
This paper analyzes how the effects of the introduction of risk-based bank capital requirements on bank loan rates depend on the market structure of the banking industry. We show that, when granting loans to borrowers under Basel II or Basel III capital requirements, banks with market power internalize an additional cost, in terms of regulatory capital, associated with the increase of borrowers' risk of default. As a result, the intermediation margin on bank loans increases with the changeover from non-risk to risk-based capital requirements, thereby making lending more expensive.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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