Basel III: Long-Term Impact on Economic Performance and Fluctuations

Angelini, Paolo; Clerc, Laurent; Cï¿1⁄2rdia, Vasco; Gambacorta, Leonardo; Gerali, Andrea; Locarno, Alberto; Motto, Roberto; Roeger, Werner; Heuvel, Skander Van den; Vlček, Jan

doi:10.2139/ssrn.1785522

Cited by 59 publications

(62 citation statements)

References 33 publications

(13 reference statements)

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“…BIS (2010a) estimates a significantly higher increase in the lending spread on the order of between 12.2 and 15.5 basis points, based on simulations with 38 macroeconomic models maintained by the central banks of advanced economies. Angelini et al (2011) reports similar findings. Similarly with the help of aggregate banking data Slovik and Cournede (2011) use accounting relations to find that lending spreads could be expected to increase by about 15 basis points.…”

Section: Related Literaturesupporting

confidence: 58%

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Basel III and its Effects on Banking Performance: Investigating Lending Rates and Loan Quantity

Gavalas¹,

Syriopoulos²

2014

JFBM

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In late 2010, the Basel Committee on Banking Supervision issued the Basel III document enumerating measures focused on improvements in the definition of regulatory capital, introduction of a leverage ratio as a backstop for risk-based capital requirement, capital buffers, enhancement of risk coverage through improvements in the methodology to measure counterparty credit risk and liquidity measurement standards. This study investigates the impact of the new capital requirements introduced under the Basel III framework on bank lending rates and loan growth. Higher capital requirements, by raising banks' marginal cost of funding, lead to higher lending rates. The data presented in the paper suggest that assuming a 1.3 percentage point increase in the equity-to-asset ratio to meet the Basel III regulations, the country-by-country estimations imply a reduction in the volume of loans by an average 4.97 percent in the long run for the banks in countries that experienced a crisis and by 18.67 percent for the banks in countries that did not experience a crisis. The wide variance in the results reflects crosscountry differences in the elasticity of loan demand with respect to loan interest rateand bank's net cost of raising equity.

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Section: Related Literaturesupporting

confidence: 58%

“…if there is a net cost of raising capital. In that case, a higher cost of equity financing relative to debt financing would lead banks to raise the price of their lending and could slow loan growth and hold back the economic recovery (Angelini et al, 2011).…”

Section: Related Literaturementioning

confidence: 99%

Basel III and its Effects on Banking Performance: Investigating Lending Rates and Loan Quantity

Gavalas¹,

Syriopoulos²

2014

JFBM

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“…As showed in Table 1, we focus mostly on lender-based measures 5 that are already defined under Pillar I 6 , by emphasizing the "green potential" they entail. Indeed, we point out that the existing capital requirements could make banks more hesitant towards green lending, and liquidity requirements could penalize long-term loans (Blundell-Wignall and Atkinson, 2010; Allen et al, 2012;Angelini et al, 2015). It is thus important to change their impact in order to achieve the above-discussed objectives.…”

Section: Financial Regulation and Climate Changementioning

confidence: 96%

Fostering green investments and tackling climate-related financial risks: Which role for macroprudential policies?

D’Orazio¹,

Popoyan

2019

Ecological Economics

207

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractWhile there is a growing debate among researchers and practitioners on the possible role of central banks and financial regulators in supporting a smooth transition to a low-carbon economy, the information on which macroprudential instruments could be used for reaching the "green structural change" is still quite limited. Moreover, the achievement of climate goals is still affected by the so-called "green finance gap". The paper addresses these issues by proposing a critical review of existing and novel prudential approaches to incentivizing the decarbonization of banks' balance sheets and align finance with sustainable growth and development objectives. The analysis carried out in the paper allows understanding under which conditions macroprudential policy could tackle climate change and promote green lending, while containing climate-related financial risks. JEL Classification: E50, E52, G28, Q50, Q58

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“…In response to the global financial crisis of 2007-2009, the Basel Committee on Banking Supervision 1 (BCBS) decided to strengthen bank soundness by introducing new regulations, collectively called Basel III (BCBS 2014;BCBS 2013;BCBS 2010a;BCBS 2010b;Angelini et al 2011). Our contribution in this article is to analyze whether or not these new regulations are likely to lead to a banking sector that will be in a better position to absorb shocks and thereby be more resilient in 1 The BCBS is an international committee constituted by central bank representatives from all around the world and other banking supervisory authorities.…”

Section: Introductionmentioning

confidence: 99%

An Empirical Study on the Impact of Basel III Standards on Banks’ Default Risk: The Case of Luxembourg

Giordana

Schumacher

2017

JRFM

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We study how the Basel III regulations, namely the Capital-to-Assets Ratio (CAR), the Net Stable Funding Ratio (NSFR) and the Liquidity Coverage Ratio (LCR), are likely to impact banks' profitability (i.e., ROA), capital levels and default. We estimate historical series of the new Basel III regulations for a panel of Luxembourgish banks for a period covering 2003q2-2011q3. We econometrically investigate whether historical LCR and NSFR components, as well as CAR positions are able to explain the variation in a measure of a bank's default risk (approximated by Z-score) and how these effects make their way through banks' ROA and CAR. We find that the liquidity regulations induce a decrease in average probabilities of default. We find that the liquidity regulation focusing on maturity mismatches (i.e., NSFR) induces a decrease in average probabilities of default. Conversely, the impact on banks' profitability is less clear-cut; what seems to matter is banks' funding structure rather than the characteristics of the portfolio of assets. Additionally, we use a model of bank behavior to simulate the banks' optimal adjustments of their balance sheets as if they had to adhere to the regulations starting in 2003q2. Then, we predict, using our preferred econometric model and based on the simulated data, the banks' Z-score and ROA. The simulation exercise suggests that basically all banks would have seen a decrease in their default risk during a crisis episode if they had previously adhered to Basel III.

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Basel III: Long-Term Impact on Economic Performance and Fluctuations

Cited by 59 publications

References 33 publications

Basel III and its Effects on Banking Performance: Investigating Lending Rates and Loan Quantity

Basel III and its Effects on Banking Performance: Investigating Lending Rates and Loan Quantity

Fostering green investments and tackling climate-related financial risks: Which role for macroprudential policies?

An Empirical Study on the Impact of Basel III Standards on Banks’ Default Risk: The Case of Luxembourg

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