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Bank capitalization and lending behavior after the introduction of the Basle Accord

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  • Ling Chu
  • Robert Mathieu
  • Sean Robb

    ()

  • Ping Zhang
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    Abstract

    In this paper, we provide evidence that banks with a low level of capitalization have reduced their commitment with respect to lines of credit after the introduction of the Basle Accord. A bank's lending behavior reflects its level of commitment towards borrowers, which in turn affects the level of effort it exerts on screening and monitoring the activities of borrowers. We find that the post-Basle Accord market reaction to the announcement of lines of credit issued by banks with a low level of capitalization is significantly lower than the reaction to other types of bank credit announcements. We interpret this result as evidence that some banks have a low level of commitment associated with lines of credit after the Basle Accord. Copyright Springer Science+Business Media, LLC 2007

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    File URL: http://hdl.handle.net/10.1007/s11156-006-0009-4
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    Bibliographic Info

    Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

    Volume (Year): 28 (2007)
    Issue (Month): 2 (February)
    Pages: 147-162

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    Handle: RePEc:kap:rqfnac:v:28:y:2007:i:2:p:147-162

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    Web page: http://springerlink.metapress.com/link.asp?id=102990

    Related research

    Keywords: Bank capitalization; Credit agreements; Basle Accord;

    References

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    1. Andre, P. & Mathieu, R. & Zhang, P., 2001. "A note on: Capital adequacy and the information content of term loans and lines of credit," Journal of Banking & Finance, Elsevier, vol. 25(2), pages 431-444, February.
    2. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    3. Ongena, S. & Smith, D.C., 2000. "Bank relationships: A review," Open Access publications from Tilburg University urn:nbn:nl:ui:12-80678, Tilburg University.
    4. Houston, Joel & James, Christopher, 1996. " Bank Information Monopolies and the Mix of Private and Public Debt Claims," Journal of Finance, American Finance Association, vol. 51(5), pages 1863-89, December.
    5. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
    6. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
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    Cited by:
    1. Fatima Alali & Bikki Jaggi, 2011. "Earnings versus capital ratios management: role of bank types and SFAS 114," Review of Quantitative Finance and Accounting, Springer, vol. 36(1), pages 105-132, January.

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