How Do Capital Requirements Affect Loan Rates? Evidence From High Volatility Commercial Real Estate

Glancy, David; Kurtzman, Robert

doi:10.2139/ssrn.3202509

Cited by 6 publications

(12 citation statements)

References 18 publications

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“…The mean of 12 basis points for this marginal effect in the piecemeal studies confirms the LEI estimate. (This is the average of standardised estimates reported in FRAME for Benetton et al (2017), Cosimano andHakura (2011), Dagher et al (2016), Glancy and Kurtzman (2018), Santos and Winton (2013), Slovik and Cournede (2011), and Sutorova and Teply (2013)). We focus on marginal costs here rather than on its components because some studies use macroeconomic models that do not consider loan spreads.…”

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confidence: 99%

“…Effect of a one percentage point higher capital ratio on bank lending rates. Based on six RTF survey responses and 19 estimates from 11 studies (see references Almenberg et al (2017), BCBS (2010), Benetton et al (2017), Brooke et al (2015), Cosimano and Hakura (2011), Dagher et al (2016), Firestone et al (2017),Glancy and Kurtzman (2018),Santos and Winton (2013),Slovik and Cournede (2011),Sutorova and Teply (2013)). Source: Financial Regulation Assessment: Meta Exercise, stats.bis.org/frame.…”

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confidence: 99%

“…Effect of a one percentage point higher capital ratio on banks' cost of funding and lending rate. Based on six RTF survey responses and 25 estimates from 17 studies (see referencesAlmenberg et al (2017),Baker and Wurgler (2013),Barth and Miller (2018), BCBS (2010),Benetton et al (2017),Brooke et al (2015),Cosimano and Hakura (2011),Dagher et al (2016),Firestone et al (2017),Gambacorta and Shin (2018),Glancy and Kurtzman (2018),Junge and Kugler (2013),Kashyap et al (2010),Miles et al (2013),Santos and Winton (2013),Slovik and Cournède (2011),Sutorova and Teplý …”

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confidence: 99%

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The Costs and Benefits of Bank Capital—A Review of the Literature

Birn

Bandt

Firestone

et al. 2020

JRFM

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In 2010, the Basel Committee on Banking Supervision published an assessment of the long-term economic impact (LEI) of stronger capital and liquidity requirements. This paper considers this assessment in light of estimates from later studies of the macroeconomic benefits and costs of higher capital requirements. Consistent with the Basel Committee’s original assessment, this paper finds that the net macroeconomic benefits of capital requirements are positive over a wide range of capital levels. Under certain assumptions, the literature finds that the net benefits of higher capital requirements may have been understated in the original committee assessment. Put differently, the range of estimates for the theoretically optimal level of capital requirements—where marginal benefits equal marginal costs—is likely either similar to, or higher than was originally estimated by the Basel Committee. The above conclusion is however subject to a number of important considerations. First, estimates of optimal capital are sensitive to a number of assumptions and design choices. For example, the literature differs in judgments made about the permanence of crisis effects as well as assumptions about the efficacy of post crisis reforms, such as liquidity regulations and bank resolution regimes, in reducing the probability and costs of future banking crisis. In some cases, these judgements can offset the upward tendency in the range of optimal capital. Second, differences in (net) benefit estimates can reflect different conditioning assumptions such as starting levels of capital or default thresholds (the capital ratio at which firms are assumed to fail) when estimating the impact of capital in reducing crisis probabilities. Finally, the estimates are based on capital ratios that are measured in different units. For example, some studies provide optimal capital estimates in risk-weighted ratios, others in leverage ratios. And, across the risk-weighted ratio estimates, the definition of capital and risk-weighted assets (RWAs) can also differ (e.g., tangible common equity (TCE) or Tier 1 or common equity tier 1 (CET1) capital; Basel II RWAs vs. Basel III measures of RWAs). A full standardisation of the different estimates across studies to allow for all of these considerations is not possible on the basis of the information available and lies beyond the scope of this paper. This paper also suggests a set of issues which warrant further monitoring and research. This includes the link between capital and the cost and probability of crises, accounting for the effects of liquidity regulations, resolution regimes and counter-cyclical capital buffers, and the impact of regulation on loan quantities.

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confidence: 99%

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The Costs and Benefits of Bank Capital—A Review of the Literature

Birn

Bandt

Firestone

et al. 2020

JRFM

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“…20 The large strand of the literature that has investigated potential effects of higher capital requirements on loan supply include e.g. Hancock and Wilcox, 1998;Conti et al, 2018;De Jonghe et al, 2019;Deli and Hasan, 2017;Eickmeier et al, 2018;Fraisse et al, 2017;Glancy and Kurtzman, 2018;Imbierowicz et al, 2018;Kanngiesser et al, 2019;Meeks, 2017;Uluc and Wieladek, 2018;Tolo and Miettinen, 2018. At least a short-term negative effect on loan supply of higher capital requirements may be due to their positive effect on bank funding costs (Schmidt, 2019).…”

Section: Effects Of Capital Requirementsmentioning

confidence: 99%

Are bank capital requirements optimally set? Evidence from researchers’ views

Ambrocio

Hasan

Jokivuolle

et al. 2020

Journal of Financial Stability

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We survey 149 leading academic researchers on bank capital regulation. The median (average) respondent prefers a 10% (15%) minimum non-risk-weighted equity-to-assets ratio, which is considerably higher than the current requirement. North Americans prefer a significantly higher equity-to-assets ratio than Europeans. We find substantial support for the new forms of regulation introduced in Basel III, such as liquidity requirements. Views are most dispersed regarding the use of hybrid assets and bail-inable debt in capital regulation. 70% of experts would support an additional market-based capital requirement. When investigating factors driving capital requirement preferences, we find that the typical expert believes a five percentage points increase in capital requirements would "probably decrease" both the likelihood and social cost of a crisis with "minimal to no change" to loan volumes and economic activity. The best predictor of capital requirement preference is how strongly an expert believes that higher capital requirements would increase the cost of bank lending.

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“…For each loan, we have information on the geography (zip code), property type, interest rate, book value, appraised value of land and buildings, and dates of maturity and acquisition. 6 For banks, we rely on quarterly, loan-level data from Schedule H.2 of the FR Y-14Q, which has also been used in a few recent papers (Black et al, 2017;Glancy and Kurtzman, 2018). This data is collected by the Federal Reserve as part of the Comprehensive Capital Analysis and Review (CCAR) for banks with more than $50 billion in assets when averaged over the previous four quarters.…”

Section: Data Descriptionmentioning

confidence: 99%

Intermediary Segmentation in the Commercial Real Estate Market

Glancy

Krainer

Kurtzman

et al. 2019

FEDS

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Banks, life insurers, and commercial mortgage-backed securities (CMBS) lenders originate the vast majority of U.S. commercial real estate (CRE) loans. While these lenders compete in the same market, they differ in how they are funded and regulated, and therefore specialize in loans with different characteristics. We harmonize loan-level data across the lenders and review how their CRE portfolios differ. We then exploit cross-sectional differences in loan portfolios to estimate a simple model of frictional substitution across lender types. The substitution patterns in the model match well the observed shift of borrowers away from CMBS when CMBS spreads rose in 2016.

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How Do Capital Requirements Affect Loan Rates? Evidence From High Volatility Commercial Real Estate

Cited by 6 publications

References 18 publications

The Costs and Benefits of Bank Capital—A Review of the Literature

The Costs and Benefits of Bank Capital—A Review of the Literature

Are bank capital requirements optimally set? Evidence from researchers’ views

Intermediary Segmentation in the Commercial Real Estate Market

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