Abstract
| Original language | English |
|---|---|
| Pages (from-to) | 255-274 |
| Number of pages | 20 |
| Journal | Journal of Empirical Finance |
| Volume | 52 |
| DOIs | |
| Publication status | Published - Jun 2019 |
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Are capital requirements on small business loans flawed? / Bams, Dennis; Pisa, Magdalena; Wolff, Christian C.P.
In: Journal of Empirical Finance, Vol. 52, 06.2019, p. 255-274.Research output: Contribution to journal › Article › Academic › peer-review
TY - JOUR
T1 - Are capital requirements on small business loans flawed?
AU - Bams, Dennis
AU - Pisa, Magdalena
AU - Wolff, Christian C.P.
PY - 2019/6
Y1 - 2019/6
N2 - We show that capital requirements on small business loans (SBL) based on Basel Committee’s Internal Ratings Based (IRB) rules are too high relative to those for corporate loans (CL), as they are not based on actual SBL data. We argue that SBL are not put on a level playing field with CL, whose requirements were calibrated on historical data. We show that such a discrepancy has real effects, as disproportionately high capital requirements are linked to lower credit availability for small businesses. In order to treat CL and SBL proportionately to their correlated credit risk, the IRB rules should require 45% lower capital requirements on the latter.
AB - We show that capital requirements on small business loans (SBL) based on Basel Committee’s Internal Ratings Based (IRB) rules are too high relative to those for corporate loans (CL), as they are not based on actual SBL data. We argue that SBL are not put on a level playing field with CL, whose requirements were calibrated on historical data. We show that such a discrepancy has real effects, as disproportionately high capital requirements are linked to lower credit availability for small businesses. In order to treat CL and SBL proportionately to their correlated credit risk, the IRB rules should require 45% lower capital requirements on the latter.
U2 - 10.1016/j.jempfin.2019.05.001
DO - 10.1016/j.jempfin.2019.05.001
M3 - Article
VL - 52
SP - 255
EP - 274
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
SN - 0927-5398
ER -