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

  • Ling Chu
  • Robert Mathieu
  • Sean Robb

    ()

  • Ping Zhang
Registered author(s):

    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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    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
    Contact details of provider: Web page: http://springerlink.metapress.com/link.asp?id=102990

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    1. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    2. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
    3. 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.
    4. Ongena, S. & Smith, D.C., 2000. "Bank relationships : A review," Other publications TiSEM 993b88a5-9a0f-42de-9cec-6, Tilburg University, School of Economics and Management.
    5. 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.
    6. 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.
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