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Support for the SME supporting factor: Multi-country empirical evidence on systematic risk factor for SME loans

Michel Dietsch (), Klaus Düllmann, Henri Fraisse, Philipp Koziol and Christine Ott

No 45/2016, Discussion Papers from Deutsche Bundesbank

Abstract: Using a unique and comprehensive data set on the two largest economies of the Eurozone - France and Germany - this paper first proceeds to a computation of the Gordy formula relaxing the ad hoc sizedependent constraints of the Basel formulas. Our study contributes to Article 501 of the Capital Requirements Regulation (CRR) requesting analysis of the consistency of own funds requirements with the riskiness of SME. In both the French and the German sample, results suggest that the relative differences between the capital requirements for large corporates and those for SME (in other words the capital relief for SME) are lower in the Basel III framework than implied by empirically estimated asset correlations. Results show that the SME Supporting Factor in the CRR/CRD IV is able to compensate the difference between estimated and CRR/CRD IV capital requirements for loans in the corporate portfolio. However, no empirical evidence is found supporting the € 1.5 mln SME threshold currently included in Article 501 (CRR).

Keywords: SME finance; Asset correlation; Basel III; CRR/CRD IV; Asymptotic Single Risk factor Model; SME Supporting Factor (search for similar items in EconPapers)
JEL-codes: C13 G21 G33 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cfn and nep-rmg
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