Are Risk-Based Capital Requirements Detrimental to Corporate Lending? Evidence from Europe

38 Pages Posted: 2 May 2017

See all articles by Brunella Bruno

Brunella Bruno

Bocconi University - Department of Finance

Giacomo Nocera

Audencia Business School

Andrea Resti

Bocconi University - Department of Finance

Date Written: April 2017

Abstract

In this paper, we first explore the main drivers of the differences in RWAs across European banks. We also assess the impact of RWA-based capital regulation on bank's asset allocation in 2008-2014. We find that risk weights are affected by bank size, business models, and asset mix. We also find that the adoption of internal ratings-based approaches is an important driver of bank risk-weighted assets and that national segmentations explain a significant (albeit decreasing) share of the variability in risk weights. As for the impact on internal rating on banks' asset allocation, we uncover that banks using IRB approaches more extensively have reduced more (or increased less) their corporate loan portfolio. Such effect is somehow stronger for banks located in Euro periphery countries during the 2010-12 sovereign crisis. We do not find evidence, however, of a reallocation from corporate loans to government exposures, pointing to the fact that other motives prevail in explaining the banks' shift towards government bonds during the Euro sovereign crisis, including the "financial repression" channel.

Suggested Citation

Bruno, Brunella and Nocera, Giacomo and Resti, Andrea, Are Risk-Based Capital Requirements Detrimental to Corporate Lending? Evidence from Europe (April 2017). CEPR Discussion Paper No. DP12007, Available at SSRN: https://ssrn.com/abstract=2961770

Brunella Bruno (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Giacomo Nocera

Audencia Business School ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

Andrea Resti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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