How Do Capital Requirements Affect Loan Rates? Evidence From High Volatility Commercial Real Estate

42 Pages Posted: 18 Jul 2018 Last revised: 16 Sep 2018

See all articles by David Glancy

David Glancy

Board of Governors of the Federal Reserve System

Robert J. Kurtzman

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: August 21, 2018

Abstract

We study how bank loan rates responded to a 50% increase in capital requirements for a subcategory of construction lending, High Volatility Commercial Real Estate (HVCRE). To identify this effect, we exploit variation in the loan terms determining whether a loan is classified as HVCRE and the time that a treated loan would be subject to the increased capital requirements. We estimate that the HVCRE rule increases loan rates by about 40 basis points for HVCRE loans, indicating that a one percentage point increase in required capital raises loan rates by about 9.5 basis points.

Keywords: Capital Requirements, Basel III, Commercial Real Estate

JEL Classification: G21, G28, G38

Suggested Citation

Glancy, David and Kurtzman, Robert J., How Do Capital Requirements Affect Loan Rates? Evidence From High Volatility Commercial Real Estate (August 21, 2018). Available at SSRN: https://ssrn.com/abstract=3202509 or http://dx.doi.org/10.2139/ssrn.3202509

David Glancy

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Robert J. Kurtzman (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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