Capital Floors, the Revised SA and the Cost of Loans in Switzerland

44 Pages Posted: 31 Aug 2016

See all articles by Simone Bernardi

Simone Bernardi

University of Zurich - Department of Banking and Finance

William Robert Maurice Perraudin

Risk Control Limited

Peng Yang

Risk Control Limited

Multiple version iconThere are 2 versions of this paper

Date Written: March 24, 2016

Abstract

The Basel Committee plans to revise the Standardised Approach (SA) to bank capital for credit risk and to employ the revised SA as a floor for bank capital based on internal models. The changes are likely to have a major impact on the overall level of capital and its distribution across banks and asset classes. This paper examines the effects of the proposed changes in capital rules on the Swiss loan market. Using primarily public information, we estimate the effects on the capital of individual Swiss banks broken down by asset class. We infer what this is likely to imply for lending rates in the Swiss market. We find that the proposed rule changes would substantially boost capital overall, affecting most severely capital for Corporate and Specialised Lending exposures. Under the BCBS 347 proposals, total bank capital would rise 39% while capital for Corporate and Specialised Lending exposures would increase by 142% and 130%, respectively. This allocation of capital across asset classes is inconsistent with the lessons of the recent financial crisis which was triggered by the collapse of the US residential mortgage market and involved relatively little impact on the quality of corporate credit. By our calculations, bank spreads for corporate loans would rise by between 63 and 103 basis points.

Keywords: Credit Risk, Market Risk, Regulation, Banks, Public Institutions

JEL Classification: G21, G28

Suggested Citation

Bernardi, Simone and Perraudin, William Robert Maurice and Yang, Peng, Capital Floors, the Revised SA and the Cost of Loans in Switzerland (March 24, 2016). Available at SSRN: https://ssrn.com/abstract=2832336 or http://dx.doi.org/10.2139/ssrn.2832336

Simone Bernardi

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

William Robert Maurice Perraudin (Contact Author)

Risk Control Limited ( email )

13-14 Dean Street
London, SE21 8LU
United Kingdom

Peng Yang

Risk Control Limited ( email )

13-14 Dean Street
London, SE21 8LU
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
61
Abstract Views
647
rank
134,280
PlumX Metrics