Macroprudential Regulation and Lending Standards

Matthew Darst, Ehraz Refayet () and Alexandros Vardoulakis
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Ehraz Refayet: https://www.occ.gov/about/who-we-are/organizations/economics-department/meet-the-research-economists/bio-ehraz-refayet.html
Alexandros Vardoulakis: https://www.federalreserve.gov/econres/alexandros-vardoulakis.htm

No 2020-086r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine how macroprudential capital requirements interact with competition between banks and non-banks to shape lending standards. Banks have private information and benefit from deposit insurance, while non-banks lack such advantages but are less regulated. We show that higher capital requirements raise banks' incentives to screen, tightening lending standards despite a decline in lender protections at the contract level. Non-bank competition does not erode but rather strengthens aggregate standards by crowding out riskier bank lending. Optimal capital regulation is lower in the presence of non-banks. Our analysis helps rationalize dynamics in leveraged loan and private credit markets.

Keywords: Lending standards; Credit cycles; Asymmetric information; Non-banks; Macroprudential regulation (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Pages: 48 p.
Date: 2020-10-09, Revised 2025-06-25
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ias and nep-rmg
Note: Revision
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-86

DOI: 10.17016/FEDS.2020.086r1

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