Financial theory approach to the investigation of the impact of Basel III capital adequacy on commercial banks

Vědecké metody zkoumání dopadu kapitálové regulace obchodních bank

Petr Pavlík

Český finanční a účetní časopis, 2017, vol. 2017, issue 4, 41-56

Abstract: The aim of this paper is to summarize results of modern investigation of Basel III impact. In order to do so, the author has analyze methodology of more than thirty studies focused on the impact of increased capital adequacy, adopted under Basel III framework, on the lending activity of commercial bank. The paper presents main methodology within both macro and microeconomic approach. Complex macroeconomic models simulate impact of increased bank's equity on profit function of the bank considering at the same time changes of total risk weigheted assets or banks' balance structure. Within the microeconomic approach, the paper puts emphasis on CAPM, as a most widely established methodology, and assumptions formed about the real M-M effect for banks. As a result, the paper brings an evidence of consensus about mainly marginal efect of increased equity of commercial banks on lending spreads within vast majority of existing studies. The important factor to consider is the lenght of the implementation period. In the long-term there is expected no significant effect of increased equity on loans pricing. Somewhat bigger differences remains as for impact of higher equity on loan volume. Differences between estimated impact on loan volume roots mainly in different assumptions about elasticities of loan demand and cost of access to new equity considered within scenarious adopted by the studies.

Keywords: Banking regulation; Capital adequacy; Impact of Basel III; Bankovní regulace; Kapitálová přiměřenost; Dopad Basel III (search for similar items in EconPapers)
JEL-codes: G21 G24 G28 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.18267/j.cfuc.504

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