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Competitive effects of Basel II on US bank credit card lending

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Author Info

  • Lang, William W.
  • Mester, Loretta J.
  • Vermilyea, Todd A.

Abstract

We analyze the potential competitive effects of the proposed Basel II capital regulations on US bank credit card lending. We find that bank issuers operating under Basel II will face higher regulatory capital minimums than Basel I banks, with differences due to the way the two regulations treat reserves and gain-on-sale of securitized assets. During periods of normal economic conditions, this is not likely to have a competitive effect; however, during periods of substantial stress in credit card portfolios, Basel II banks could face a significant competitive disadvantage relative to Basel I banks and nonbank issuers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 17 (2008)
Issue (Month): 4 (October)
Pages: 478-508

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Handle: RePEc:eee:jfinin:v:17:y:2008:i:4:p:478-508

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Web page: http://www.elsevier.com/locate/inca/622875

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Keywords: Basel Accord Basel II Capital requirements Bank regulation Competition;

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References

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  1. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, September.
  2. Charles W. Calomiris & Joseph R. Mason, 2003. "Credit card securitization and regulatory arbitrage," Working Papers 03-7, Federal Reserve Bank of Philadelphia.
  3. Flannery, Mark J. & Rangan, Kasturi P., 2006. "Partial adjustment toward target capital structures," Journal of Financial Economics, Elsevier, vol. 79(3), pages 469-506, March.
  4. Sujit Chakravorti & William R. Emmons, 2001. "Who pays for credit cards?," Occasional Paper; Emerging Payments EPS-2001-1, Federal Reserve Bank of Chicago.
  5. Mark Carlson & Roberto Perli, 2004. "Profits and balance sheet developments at U.S. commercial banks in 2003," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Spr, pages 162-191.
  6. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  7. Douglas W. Diamond & Raghuram G. Rajan, 1999. "A Theory of Bank Capital," NBER Working Papers 7431, National Bureau of Economic Research, Inc.
  8. Calem, Paul & Rob, Rafael, 1999. "The Impact of Capital-Based Regulation on Bank Risk-Taking," Journal of Financial Intermediation, Elsevier, vol. 8(4), pages 317-352, October.
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Cited by:
  1. Vermilyea, Todd A. & Webb, Elizabeth R. & Kish, Andrew A., 2008. "Implicit recourse and credit card securitizations: What do fraud losses reveal?," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1198-1208, July.
  2. Bill Yang & Amanda King, 2011. "Do Credit Cards Really Reduce Aggregate Money Holdings?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 39(1), pages 85-95, March.

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