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To Ask or Not To Ask? Bank Capital Requirements and Loan Collateralization

Hans Degryse, Artashes Karapetyan and Sudipto Karmakar

No 13331, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the impact of higher capital requirements on banks' decisions to grant collateralized rather than uncollateralized loans. We exploit the 2011 EBA capital exercise, a quasi-natural experiment that required a number of banks to increase their regulatory capital but not others. This experiment makes secured lending more attractive vis-à-vis unsecured lending for the affected banks as secured loans require less regulatory capital. Using a loan-level dataset covering all corporate loans in Portugal, we identify a novel channel of higher capital requirements: relative to the control group, treated banks require loans to be collateralized more often after the shock, but less so for relationship borrowers. This applies in particular for collateral that saves more on regulatory capital.

Keywords: Capital requirements; Collateral; Lending Technology; relationship lending (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-eec and nep-rmg
Date: 2018-11
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