Mascia, DV orcid.org/0000-0002-3776-0420 (2023) Internally-Assessed Bank Capital Requirements and Loan Portfolio Spreads. British Journal of Management, 34 (4). pp. 2334-2353. ISSN 1045-3172
Abstract
How the choice of more risk-sensitive capital requirements by some banks influences average borrowing costs for their customers remains an open question. By exploiting cross-country manually collected capital requirement data, we find higher portfolio loan spreads in banks that compute a larger share of these requirements for the loan portfolio through internal rating-based (IRB) models. This result is driven by larger IRB adopters operating in credit markets with low competition from banks computing capital requirements with the less risk-sensitive standardized models, by IRB adopters in credit markets where borrowers have more limited funding opportunities, and by IRB adopters in markets characterized by lower levels of political connectedness. Our results contrast with theoretical predictions suggesting that the heterogeneity in risk weights induced by IRB models should reduce average borrowing costs for bank customers. Instead, we show that IRB adopters do not fully incorporate the decrease in capital requirements obtained with these models into their pricing policies when competitive and political pressures are low.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2023 The Author. British Journal of Management published by John Wiley & Sons Ltd on behalf of British Academy of Management. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made. |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) > Accounting & Finance Division (LUBS) (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 25 Jan 2023 14:52 |
Last Modified: | 23 May 2024 14:32 |
Status: | Published |
Publisher: | Wiley |
Identification Number: | 10.1111/1467-8551.12708 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:195613 |