Journal of money credit and banking · 1994 · 595 citations · 0 references
BusinessBusiness EconomicsFinanceBank RegulationBankingFinancial EconomicsBank Risk ManagementCapital Structure DeterminantsCredit MarketsCredit RiskFinancial RiskRisk-based CapitalBank Capital AllocationBank Credit RiskCredit Supply ShocksDemand-side FinancingDemand-side ResponsesRisk-based Capital AllocationRisk-based Capital TreatmentRisk-based Lending
The study investigates how risk‑based capital and other regulatory changes may have caused a supply‑driven credit crunch by reallocating bank credit from loans to securities in the early 1990s. The authors use data on virtually all U.S. banks from 1979 to 1992 to examine the reallocation of credit from loans to securities. Empirical evidence does not support the hypothesis that low‑capital, high‑risk banks drove the credit crunch; instead, demand‑side factors largely explain the reallocation.
This paper examines the reallocation of bank credit from loans to securities in the early 1990s using data on virtually all U.S. banks from 1979 to 1992. The authors investigate implementation of risk-based capital and other regulatory and nonregulatory changes as possible causes of a supply-driven credit crunch. The main empirical implication of these credit crunch hypotheses--that the reallocation of credit would be most associated with low-capital, high-risk banks--generally is not consistent with the data. Much of the reallocation is associated with demand-side factors but it is difficult to differentiate cleanly among these factors. Copyright 1994 by Ohio State University Press.