IMF: what the evidence from US and Europe says about Basel III and bank lending

Using data on commercial banks in the United States and Europe, this paper analyses the impact of the new Basel III capital and liquidity regulation on bank lending following the 2008 financial crisis. IMF researchers find that US banks reinforce their risk absorption capacities when expanding their credit activities. Capital ratios have significant, negative impacts on “bank retail and other lending growth” for large European banks in the context of deleveraging and the “credit crunch” in Europe over the post-2008 financial crisis period. Additionally, liquidity indicators have positive but perverse effects on bank lending growth, which supports the need to consider heterogeneous banks’ characteristics and behaviors when implementing new regulatory policies.

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