Wholesale Bank Funding, Capital Requirements and Credit Rationing
IMF Working Papers, January 31, 2013
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- Wholesale Bank Funding, Capital Requirements and Credit Rationing
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Bibliographic details
- Authors: Itai Agur
- Published: January 31, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475571622.001
Overview
- This paper analyzes how different types of bank funding affect the extent to which banks ration credit to borrowers, and the impact that capital requirements have on that rationing.
- Using an extension of the standard Stiglitz-Weiss model of credit rationing, the paper contrasts unsecured wholesale finance with funding by retail depositors and examines secured (collateralized) wholesale funding.
Methodology
- Analytical extension of the Stiglitz-Weiss model of credit rationing to incorporate different bank funding structures (retail deposits, unsecured wholesale funding, secured wholesale funding).
Key Findings
- Unsecured wholesale finance amplifies the credit market impact of capital requirements as compared to funding by retail depositors.
- Unsecured wholesale finance surged in the pre-crisis years.
- Unsecured wholesale finance is increasingly being replaced by secured funding.
- The collateralization of wholesale funding is found to expand the extent of credit rationing.
Policy Implications and Interpretation
- The interaction between capital requirements and the composition of bank funding matters for credit availability: when banks rely more on unsecured wholesale funding, capital requirements have a larger effect on credit rationing.
- A shift from unsecured to secured wholesale funding changes the channel through which funding composition affects credit supply; collateralization, while altering funding risk, is associated with an expansion in credit rationing according to the model.
- Policymakers should consider how regulatory capital requirements interact with prevailing funding structures (retail deposits, unsecured wholesale, secured wholesale) when evaluating effects on credit supply.
Subjects and Keywords
- Subject: Bank credit, Bank deposits, Banking, Credit, Loans
- Keywords: credit rationing, financial crisis, WP
Source: Wholesale Bank Funding, Capital Requirements and Credit Rationing, IMF Working Paper.