How do Capital Requirements Affect Loan Rates? Evidence from High Volatility Commercial Real Estate

David Glancy and Robert Kurtzman

No 2018-079, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study how bank loan rates responded to a 50% increase in capital requirements for a subcategory of construction lending, High Volatility Commercial Real Estate (HVCRE). To identify this effect, we exploit variation in the loan terms determining whether a loan is classified as HVCRE and the time that a treated loan would be subject to the increased capital requirements. We estimate that the HVCRE rule increases loan rates by about 40 basis points for HVCRE loans, indicating that a one percentage point increase in required capital raises loan rates by about 9.5 basis points.

Keywords: Basel III; Capital Requirements; Commercial Real Estate (search for similar items in EconPapers)
JEL-codes: G21 G28 G38 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2018-11
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-rmg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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https://www.federalreserve.gov/econres/feds/files/2018079pap.pdf (application/pdf)

Related works:
Journal Article: How Do Capital Requirements Affect Loan Rates? Evidence from High Volatility Commercial Real Estate* (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2018-79

DOI: 10.17016/FEDS.2018.079

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