Paper examines role of capital in BHC lending decisions
Research quantifies impact of a change in capital requirements
An increase in capital requirements is "likely" to lead to higher loan rates and a "significant" reduction in lending by bank holding companies (BHCs), according to research published by the International Monetary Fund today.
The working paper, The Role of Bank Capital in Bank Holding Companies' Decisions, by Adoldo Barajas, Thomas Cosimano, Dalia Hakura and Sebastian Roelands, finds BHCs set their capital ratios based on "past realizations of interest and non-interest expenses, as well as the
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