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Impact of Bank Regulatory Capital Requirements: On Canadian Banks’ Gross Loan Portfolio

In: The Effect of Changes in Regulatory Capital Requirements on Bank Lending

Author

Listed:
  • Berenger Piper

    (Business Science Institute & Macro Insight Research Hub)

Abstract

This chapter investigated the effect of changes in regulatory capital requirements on the components of the portfolio of gross loan offered by Canadian banks to the non-financial sector. The study covered the three largest components of the portfolio of gross loan offered by Canadian banks to the non-financial sector: Corporate & Commercial Loans (26% of Gross Loans), Residential Mortgage Loans (44% of Gross Loans), and Other Consumer/Retail Loans (20% of Gross Loans). The study used a sample of annual financial statistics of Canadian financial institutions from 2012 to 2021, from Fitch Connect database, over the period of 2012 to 2021. The data also encompasses macroeconomic statistics from the Bank of Canada, BIS, and Economic Policy Uncertainty Research Group. The results suggested that changes in Canadian regulatory bank capital requirement ratio had a direct downward impact on only the portion of Canadian lending portfolio that accounts for Corporate & Commercial Loans. The results also found that the impact of the increase in the Canadian regulatory bank capital requirements on Corporate & Commercial Loans is dependent on changes in economic policy. Additionally, the study found that in times of economic policy uncertainty, Canadian banks with an increased return on assets over the previous year decreased their credit allocation towards Residential Mortgage Loans, following an increase in Canadian regulatory bank capital requirements. However, the level of credit portfolio allocation by Canadian banks to other Consumer/Retail Loans is rather impacted by the macroeconomic environment.

Suggested Citation

  • Berenger Piper, 2025. "Impact of Bank Regulatory Capital Requirements: On Canadian Banks’ Gross Loan Portfolio," Springer Books, in: The Effect of Changes in Regulatory Capital Requirements on Bank Lending, chapter 4, pages 71-102, Springer.
    • Handle: RePEc:spr:sprchp:978-3-032-02208-0_4
    DOI: 10.1007/978-3-032-02208-0_4
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