Loan interest rates under risk-based capital requirements: The impact of banking market structure
AbstractThis 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.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 32 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30411
Risk-based capital requirements; Basel accord; Imperfect competition;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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