Pandemic Lending: The Unintended Effects of Model-based Regulation

How to Release Capital Requirements During a Pandemic? Evidence from Euro Area Banks

“…The risk weights applied to banks' exposures depend also on the approach used by banks to compute riskweighted assets: the Standardised Approach or the Internal-Rating Based (IRB) Approach. The choice of this approach may have some implications for bank lending, as in crisis times model-based regulation may foster a relative reduction in credit supply(Fiordelisi et al, 2021) ECB Working Paper Series No 2720 / September 2022…”