In this paper, we first explore the main drivers of the differences in risk-weighted assets (RWAs) across a sample of 50 large European banking groups. We then assess the impact of RWA-based capital regulations on those banks’ asset allocations 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 (IRB) approaches is an important driver of RWAs and that national segmentations explain a significant (albeit decreasing) share of the variability in risk weights. As for the impact of internal ratings on banks’ asset allocation in 2008-2014, we uncover that banks using IRB approaches more extensively have reduced more (or increased less) their corporate loan portfolio. This effect is somewhat stronger for banks located in Eurozone periphery countries during the 2010-12 sovereign crisis. We do not find evidence, however, of internal models producing a reallocation from corporate loans to government exposures, suggesting that other motives prevailed in driving banks towards sovereign bonds during the Eurozone sovereign crisis, including the so-called ‘financial repression’ channel.

Are risk-based capital requirements detrimental to corporate lending? Evidence from Europe

Resti, Andrea;Bruno, Brunella;Nocera, Giacomo
2018-01-01

Abstract

In this paper, we first explore the main drivers of the differences in risk-weighted assets (RWAs) across a sample of 50 large European banking groups. We then assess the impact of RWA-based capital regulations on those banks’ asset allocations 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 (IRB) approaches is an important driver of RWAs and that national segmentations explain a significant (albeit decreasing) share of the variability in risk weights. As for the impact of internal ratings on banks’ asset allocation in 2008-2014, we uncover that banks using IRB approaches more extensively have reduced more (or increased less) their corporate loan portfolio. This effect is somewhat stronger for banks located in Eurozone periphery countries during the 2010-12 sovereign crisis. We do not find evidence, however, of internal models producing a reallocation from corporate loans to government exposures, suggesting that other motives prevailed in driving banks towards sovereign bonds during the Eurozone sovereign crisis, including the so-called ‘financial repression’ channel.
9780198815822
Mayer, Colin; Micossi, Stefano; Onado, Marco; Pagano, Marco; Polo, Andrea
Finance and investment: the European case
Resti, Andrea; Bruno, Brunella; Nocera, Giacomo
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3999446
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