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A New Structure for Regulated Bank Lending in a Cyclical Downturn

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  • William Wild
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    Abstract

    This paper outlines a new structure for lending by regulated banks, under which the Tier 1 capital required to support a new loan is provided by the borrower�s own equity-holders. In a downturn cyclical environment this would secure a new, motivated and informed class of bank capital provider to counter the pro-cyclicality of bank lending. The new structure would be competitive in terms of cost to borrowers, nondilutive of existing bank capital and credit risk neutral. It also has the potential to be an effective instrument of market discipline in economic upcycles and regulators might consider adopting it as a pillar in any revised bank capital regime.

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    File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2008/239WilliamWild28OCT08.pdf
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    Bibliographic Info

    Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 239.

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    Date of creation: 29 Oct 2008
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    Handle: RePEc:qut:dpaper:239

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