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Competitive effects of Basel II on U.S. bank credit card lending

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

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Abstract

The authors analyze the potential competitive effects of the proposed Basel II capital regulations on U.S. bank credit card lending. They 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. ; Also issued as Payment Cards Center Discussion Paper No. 07-04 ; Supersedes "Potential competitive effects on U.S. bank credit card lending from the proposed bifurcated application of Basel II", Working Paper 05-29

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 07-9.

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Date of creation: 2007
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Handle: RePEc:fip:fedpwp:07-9

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Keywords: Basel capital accord ; Credit cards;

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  1. 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. [Downloadable!]
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  2. 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. [Downloadable!] (restricted)
  3. Sujit Chakravorti & William R. Emmons, 2001. "Who pays for credit cards?," Occasional Paper; Emerging Payments EPS-2001-1, Federal Reserve Bank of Chicago. [Downloadable!]
  4. Charles W. Calomiris & Joseph R. Mason, 2003. "Credit card securitization and regulatory arbitrage," Working Papers 03-7, Federal Reserve Bank of Philadelphia. [Downloadable!]
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