IMF published working paper on bank behaviour in response to Basel III: A cross-country analysis
27 May 2011
The IMF paper investigates the impact of the new capital requirements introduced under the Basel III framework on bank lending rates and loan growth. The paper suggests that higher capital requirements, by raising banks' marginal cost of funding, lead to higher lending rates.
The data presented in the paper suggests that large banks would on average need to increase their equity-to-asset ratio by 1.3 percentage points under the Basel III framework. The results also suggest that banks' responses to the new regulations will vary considerably from one advanced economy to another (e.g. a relatively large impact on loan growth in Japan and Denmark and a relatively lower impact in the US) depending on cross-country variations in banks' net cost of raising equity, and the elasticity of loan demand with respect to changes in loan rates.
© International Monetary Fund
