Download This PaperPandemic Lending: The Unintended Effects of Model-based Regulation
40 Pages Posted: 4 Feb 2022
Date Written: November 12, 2021
Abstract
Does model-based bank regulation constrain lending when it matters the most? Using an extensive loan-level supervisory dataset on credit exposures of Euro Area banks, we document that during the Covid-19 pandemic, banks using their own (internal-rating based or IRB) models to measure credit risk, decreased their on-balance sheet credit exposures, especially lending, to Non-Financial Corporations more than banks using standard ( fixed risk-weights) models to the same borrower. Lower capitalized IRB banks reduced their exposures more towards borrowers absorbing more regulatory capital and borrowers in the economic sectors most affected by the pandemic.
Keywords: Banks, Supervision, Lending, Credit Rationing
JEL Classification: G21, G28
Suggested Citation: Suggested Citation
David Marques-Ibanez
European Central Bank (ECB) ( email )
Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
49 6913 44 6460 (Phone)
49 6913 44 6460 (Fax)