Risk-Based Capital Standards and the Credit Crunch
The failure of the banking system to play its normal role in the transmission of the monetary stimulus to the economy may have contributed to the 1990-91 recession and the sluggish recovery from it. This paper examines the 1988 Basel Agreement on risk-based capital standards as a possible shock to the credit supply system and finds that banks with larger capital surpluses resulting from the risk-based requirements had faster loan growth between 1987 and 1991 than those with smaller surpluses or which failed the new standards. Newly issued capital in banks with larger capital surpluses was associated with greater loan growth than were the same capital additions in banks with smaller capital surpluses. Copyright 1995 by Ohio State University Press.
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Volume (Year): 27 (1995)
Issue (Month): 3 (August)
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