Potential Competitive Effects of Basel II on Banks in SME Credit Markets in the United States

By Allen N. Berger. 2004

134 citations recorded by the source corpus.

We examine the likely competitive effects of implementation of Basel II capital requirements on banks in the market for credit to SMEs in the U.S. Similar competitive effects from Basel II may occur for other credits and financial instruments in the U.S. and other nations. We address whether reduced risk weights for SME credits extended by large banking organizations that adopt the Advanced Internal Ratings-Based (A-IRB) approach of Basel II might significantly adversely affect the competitive positions of other organizations. The analyses suggest only relatively minor competitive effects on most community banks because the large A-IRB adopters tend to make very different types of SME loans to different types of borrowers than community banks. However, there may be significant adverse effects on the competitive positions of large non-A-IRB banking organizations because the data do not suggest any strong segmentation in SME credit markets among large organizations.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/02aba344f3ca5926d3eb78753f66e5921d3d0077

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Citations in the corpus

Bank size and risk-taking under Basel II (2005, background): “See Berger and Udell (2002) and Stein (2002) for theoretical arguments, and Haynes, Ou, and Berney (1999), Berger, Miller, Petersen, Rajan, and Stein (2002), Carter and McNulty (2004), and Cole, Goldberg, and White (2004) for empirical evidence using U.”
Are good or bad borrowers discouraged from applying for loans? Evidence from US small business credit markets (2009, background): “…with the existing literature which has identified the effects of market concentration on small business finance (see e.g., Cavalluzzo et al, 2002; and Petersen and Rajan, 1995) due essentially to the impact of competition on the market power of lenders (e.g. Degryse and Ongena, 2005; Berger 2004).”
Does Market Size Structure Affect Competition? The Case of Small Business Lending (2007, unknown): “…risk-adjusted yields on small business loans than small banks (e.g., Hannan 1991, 1997, Berger and Udell 1996, Carter, McNulty, and Verbrugge 2004, Berger 2006).4 These findings are often used to support the argument that large banks are generally disadvantaged in lending to opaque small…”
Determinants of Collateral (2004, unknown): “Berger (2004) interprets the fact that larger banks tend to lend more often without collateral as evidence that they specialise in transactional lending to relatively safe and transparent firms.”
Organizational distance and use of collateral for business loans (2009, background): “…it is more likely that the loan will be processed using transactional lending technologies, which in turn implies that the loan is granted to safe and highly transparent borrowers, i.e. those borrowers for whom the loan is less likely to be collateralized [Berger and Udell (2002); Berger (2006)].”
Small Business Credit Scoring and Credit Availability* (2007, background): “Citibank’s “Citibusiness” initiative targets credit to small and medium enterprises in industrial segments of a nation identified as having growth potential based on industry-level hard information, in some cases without historical credit information on the specific firms and owners.”
A More Complete Conceptual Framework for Financing of Small and Medium Enterprises (2005, background): “…if they manage SME loans as part of a pool, which may favor some of the transactions technologies over relationship lending (Altman and Sabato 2005, Berger 2006).16 16 In the U.S., the largest banks are generally expected to have lower capital requirements on many SME loans, while in other…”