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Forward-looking reaction to bank regulation

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  • Herrala, Risto

Abstract

This paper presents evidence that banks react to regulation in a forward-looking manner. A case study documents a reaction to Basel II as early as 2000, in other words about seven years prior to the implementation of the regulation in 2007. Based on the initial information released on Basel II, banks loosened their credit policies towards households. The changes were substantial, improving household credit availability by 20-50%. A new approach to estimate borrowing constraints from loan samples is also presented. JEL Classification: D14, E32, E51, G21

Suggested Citation

  • Herrala, Risto, 2014. "Forward-looking reaction to bank regulation," Working Paper Series 1645, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20141645
    Note: 331722
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1645.pdf
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    References listed on IDEAS

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    Cited by:

    1. Tuuli, Saara, 2019. "Model-based regulation and firms' access to finance," Bank of Finland Research Discussion Papers 4/2019, Bank of Finland.
    2. Adrian Babin, 2015. "Home-Host Banking Issues and Non-Core Funding—Evidence from Central and Eastern Europe," Open Economies Review, Springer, vol. 26(3), pages 447-477, July.
    3. repec:zbw:bofrdp:2019_004 is not listed on IDEAS
    4. Tuuli, Saara, 2019. "Model-based regulation and firms' access to finance," Research Discussion Papers 4/2019, Bank of Finland.
    5. Herrala, Risto & Turk-Ariss, Rima, 2016. "Capital accumulation in a politically unstable region," Journal of International Money and Finance, Elsevier, vol. 64(C), pages 1-15.

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    More about this item

    Keywords

    bank regulation; borrowing constraints; credit policy;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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