The Financing of Innovative Activities By Banking Institutions: Policy Issues and Regulatory Options

Abstract

The paper investigates to what extent the convergence of banks over risk-adjusted capital standards set by the new Basel Capital Accord may affect the way in which they screen innovative firms. It also gives an overview of the existing forms of credit support to R&D activities. The study is built upon a survey conducted in January and February 2006 on 12 main Italian banking groups. The survey provides interesting insights on the use of non-financial parameters to assess the creditworthiness of potential borrowers and on the architecture of internal rating systems in the light of Basel II requirements. Results suggest that the majority of banks does not consider intangibles as meaningful determinants in credit risk assessment. This could imply that the sole implementation of the Accord might not lead to reduce informational asymmetries between lenders and borrowers as it could be expected. However, such an effect could be compensated by specific measures provided by single financial intermediaries.

Keywords: internal rating systems, innovation financing, Basel II

JEL Classification: G21, G28, G33, O30, O38