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Basel III: Will Borrowing Money from Czech Banks Become More Expensive?

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  • Milan Matejašák

Abstract

We estimate the required increase in banks' lending spreads assuming that banks under regulatory pressure would raise lending spreads to prevent ROE from falling when the capital regulation is tightened. We focus our analysis on six Czech banks that are under regulatory pressure, and are therefore the ones most affected by the increased capital requirement. We follow the mapping methodology presented by King (2010). We find that the required increase in lending spreads to keep ROE from falling totals 6.3 basis points. We conclude that the impact of tightened capital regulation on lending spreads in the Czech banking sector is minor. If shareholders decide to absorb some of the fall in ROE, or they take other measures to prevent a fall in ROE, the potential impact on lending spreads will be even smaller.

Suggested Citation

  • Milan Matejašák, 2014. "Basel III: Will Borrowing Money from Czech Banks Become More Expensive?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2014(2), pages 4-27.
    • Handle: RePEc:prg:jnlefa:v:2014:y:2014:i:2:id:117
    DOI: 10.18267/j.efaj.117
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    References listed on IDEAS

    as
    1. Sun Eae Chun & Hoon Kim & Wonhong Ko, 2012. "The Impact of Strengthened Basel III Banking Regulation on Lending Spreads: Comparisons across Countries and Business Models," Working Papers 2012-15, Economic Research Institute, Bank of Korea.
    2. Mr. Scott Roger & Mr. Jan Vlcek, 2011. "Macroeconomic Costs of Higher Bank Capital and Liquidity Requirements," IMF Working Papers 2011/103, International Monetary Fund.
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    More about this item

    Keywords

    Basel III; Capital adequacy; Capital requirement; Lending spreads;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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