IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Bank Capital and the Credit Crunch: The Roles of Risk-Weighted and Unweighted Capital Regulations

Listed author(s):
  • Diana Hancock
  • James A. Wilcox

We investigated whether in recent years banks have increased their holdings of securities at the expense of their holdings of business loans in response to shortfalls of their capital relative to risk-weighted capital standards and relative to a capital standard that made no explicit allowance for credit risk. We estimated that bank credit fell by about $4.50 for each $1 that a bank's capital fell short of the unweighted capital standard. Banks that had less capital than required by the risk-weighted standard appear to have shifted away from assets with low risk weights (securities and single-family mortgages) and to have shifted toward assets with higher risk weights (commercial real estate and commercial and industrial loans). When we included both shortfall variables in a regression, shortfalls relative to the unweighted capital standard significantly affected bank credit, while shortfalls of capital relative to the risk-weighted standard did not. We found no significant effects of capital shortfalls at other, local-competitor banks on bank portfolios. Delinquencies in a given category of a bank's loans generally had significantly negative effects on that bank's holdings of loans in that category. In contrast, banks tended to increase holdings of loans in categories in which local-competitor banks were experiencing higher delinquency rates. Copyright American Real Estate and Urban Economics Association.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 22 (1994)
Issue (Month): 1 ()
Pages: 59-94

in new window

Handle: RePEc:bla:reesec:v:22:y:1994:i:1:p:59-94
Contact details of provider: Postal:
Indiana University, Kelley School of Business, 1309 East Tenth Street, Suite 738, Bloomington, Indiana 47405

Phone: (812) 855-7794
Fax: (812) 855-8679
Web page:

More information through EDIRC

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bla:reesec:v:22:y:1994:i:1:p:59-94. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.