Forward-Looking Reaction to Bank Regulation
40 Pages Posted: 15 Mar 2014
Date Written: February 17, 2014
This paper presents evidence that banks react to regulation in a forward-looking manner. A case study documents a reaction to Basel II as early as 2000, in other words about seven years prior to the implementation of the regulation in 2007. Based on the initial information released on Basel II, banks loosened their credit policies towards households. The changes were substantial, improving household credit availability by 20-50%. A new approach to estimate borrowing constraints from loan samples is also presented.
Keywords: credit policy, borrowing constraints, bank regulation
JEL Classification: D14, E32, E51, G21
Suggested Citation: Suggested Citation