Forward-Looking Reaction to Bank Regulation

40 Pages Posted: 15 Mar 2014

See all articles by Risto Herrala

Risto Herrala

European Central Bank (ECB) - Directorate General International and European Relations

Date Written: February 17, 2014

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.

Keywords: credit policy, borrowing constraints, bank regulation

JEL Classification: D14, E32, E51, G21

Suggested Citation

Herrala, Risto, Forward-Looking Reaction to Bank Regulation (February 17, 2014). ECB Working Paper No. 1645, Available at SSRN: https://ssrn.com/abstract=2397105

Risto Herrala (Contact Author)

European Central Bank (ECB) - Directorate General International and European Relations ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
34
Abstract Views
341
PlumX Metrics