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

43 Pages Posted: 27 Nov 2018 Last revised: 21 Feb 2019

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: November, 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.

JEL Classification: G38, G28, G21

Suggested Citation

Glancy, David and Kurtzman, Robert J., How Do Capital Requirements Affect Loan Rates? Evidence from High Volatility Commercial Real Estate (November, 2018). FEDS Working Paper No. 2018-79, Available at SSRN: https://ssrn.com/abstract=3289453 or http://dx.doi.org/10.17016/FEDS.2018.079

David Glancy (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Robert J. Kurtzman

Board of Governors of the Federal Reserve System ( email )

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

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