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Pew : Quantifying the Effects on Lending of Increased Capital Requirements

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Pew Financial Reform Project Briefing Paper# 7 – Quantifying the cost on lending of increased capital requirements, Douglas J. Elliott.

  • “The analysis presented here strongly suggests that the U.S. banking industry could adjust to higher capital requirements on loans through a combination of actions that would not wreak havoc on the system. Not surprisingly, the adjustments would need to come from a set of actions, since the rebalancing appears tough to achieve with any single move. Fortunately, the banks do have a variety of levers to pull which should allow them to make the transition. These findings imply that there would likely be relatively small changes in loan volumes by U.S. banks as a result of higher capital requirements on loans retained on the banks’ balance sheets. The various actions required to restore an acceptable return on common equity appear unlikely to be large enough, even in the aggregate, to significantly discourage customers from borrowing or move them to other credit suppliers in a major way.”
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