Loan interest rates under risk-based capital requirements: The impact of banking market structure

• Type: Article in International Scientific Journal
• Date: 2013

Authors

Inês Drumond (Author) FEP; José Jorge (Author) FEP

Journal

Title: Economic Modelling

Vol. 32

Pages: 602-607

ISSN: 0264-9993

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 9 Citations

ISI Web of Science

Scopus - 10 Citations

Scientific classification

FOS: Social sciences > Economics and Business

CORDIS: Social sciences > Economics > Banking

Other information

Authenticus ID: P-005-0X8

DOI: 10.1016/j.econmod.2013.02.017

Abstract (EN): This paper analyzes how the effects of the introduction of risk-based bank capital requirements on bank loan rates depend on the market structure of the banking industry. We show that, when granting loans to borrowers under Basel It or Basel III capital requirements, banks with market power internalize an additional cost, in terms of regulatory capital, associated with the increase of borrowers' risk of default. As a result, the intermediation margin on bank loans increases with the changeover from non-risk to risk-based capital requirements, thereby making lending more expensive.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 6