Bank Behavior in Response to Basel III: A Cross-Country Analysis
By T. Cosimano, Dalia S. Hakura. Social Science Research Network, 2011
149 citations recorded by the source corpus.
This paper investigates the impact of the new capital requirements introduced under the Basel III framework on bank lending rates and loan growth. Higher capital requirements, by raising banks’ marginal cost of funding, lead to higher lending rates. The data presented in the paper suggest that large banks would on average need to increase their equity-to-asset ratio by 1.3 percentage points under the Basel III framework. GMM estimations indicate that this would lead large banks to increase their lending rates by 16 basis points, causing loan growth to decline by 1.3 percent in the long run. The results also suggest that banks’ responses to the new regulations will vary considerably from one advanced economy to another (e.g. a relatively large impact on loan growth in Japan and Denmark and a relatively lower impact in the U.S.) depending on cross-country variations in banks’ net cost of raising equity and the elasticity of loan demand with respect to changes in loan rates.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/e1fb320e062a2dcac9d07bda089d4cfa6f20983a
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Citations in the corpus
- Banking on Stability: The Political Economy of New Capital Requirements in the European Union (2013, result): “…systems echoes the findings in a range of other studies: to demonstrate a particularly significant impact upon bank lending in Germany (with a decline of upwards of 7.73 per cent) and a smaller but still significant drop in the UK, with France somewhere in between (Cosimano and Hakura 2011).”