The Impact of Basel III Bank Regulation on Lending Spreads: Comparisons across Countries and Business Models

초록

We estimate required increase in banks’ lending spreads assuming that banks would raise lending spreads among the measures they could take to prevent ROE from falling when the capital regulation is tightened following the estimation methodology employed by King (2010) and Elliott (2009). We find that the required lending spreads vary from 0.1bp for real estate & mortgage banks to 9.1bp for commercial banks over the sample periods of 2005-2010. Countries such as Brazil, China, India, and Mexico require the banks to have large lending spreads ranging from 13.2bp to 29.7bp. On the other hand, countries such as Australia, Switzerland, Germany, Italy, and Netherland require them to increase smaller lending spreads for the increase in the regulatory capital. We find that liquidity regulation (NSFR) increases lending rates by 20.0bp for the commercial banks of the sample countries.

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