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Loan Pricing Following a Macro Prudential Within-Sector Capital Measure

  • Bruno Martins
  • Ricardo Schechtman

This paper investigates the consequences on loan spreads of a within-sector macro prudential capital measure in Brazil. Due to concerns related to a possibly too fast and unbalanced expansion of the auto-loan sector, regulatory capital was raised for auto-loans with specific long maturities and high LTVs. Our results show that Brazilian banks, after the regulatory measure, increased spreads charged on the same borrower for similar auto loans whose regulatory risk weights have increased. In comparison to the set of untargeted loans, the increase was at least of 13%. On the other hand, evidence on increase of spreads also for loans whose risk weights have not been altered is not robust. Finally, this paper shows that the later withdrawal of the regulatory capital measure was associated, similarly, to lower spreads charged on auto loans whose risk weights have decreased. Nevertheless, when measured relatively, this reduction in spreads was smaller than the original increase.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps323.pdf
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 323.

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Date of creation: Aug 2013
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Handle: RePEc:bcb:wpaper:323
Contact details of provider: Web page: http://www.bcb.gov.br/?english

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  1. Peek, Joe & Rosengren, Eric S, 1997. "The International Transmission of Financial Shocks: The Case of Japan," American Economic Review, American Economic Association, vol. 87(4), pages 495-505, September.
  2. Jo�o A. C. Santos, 2011. "Bank Corporate Loan Pricing Following the Subprime Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1916-1943.
  3. Houston, Joel & James, Christopher & Marcus, David, 1997. "Capital market frictions and the role of internal capital markets in banking," Journal of Financial Economics, Elsevier, vol. 46(2), pages 135-164, November.
  4. William Francis & Matthew Osborne, 2009. "Bank regulation, capital and credit supply: Measuring the Impact of Prudential Standards," Occasional Papers 36, Financial Services Authority.
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