Topic: The cost of bank regulatory
capital
Speaker: Joao Santos, Senior Vice President & Policy Lead for Microprudential
Supervision, Federal Reserve Bank of New York
Date: September
25 (Tuesday)
Time: 10:00-11:30am
Location: Building 4 Room 102
Language: English
Abstract:
The Basel I Accord
introduced a discontinuity in required capital for undrawn credit commitments.
While banks had to set
aside capital when they extended commitments with maturities in excess of one
year, short-term commitments were not subject to a capital requirement. The
Basel II Accord sought to reduce this discontinuity by extending capital standards
to most short-term commitments. We use these differences in capital standards around
the one-year maturity to infer the cost of bank regulatory capital. Our results
show that following Basel I, undrawn fees and all-in-drawn credit spreads on
short-term commitments declined (relative to those of long-term commitments).
In contrast, following the passage of Basel II, both undrawn fees and spreads
went up. These results are robust and confirm that banks act to conserve
regulatory capital by modifying the cost and supply of credit.
About the speaker:
Jo?o Santos is Senior
Vice President and Policy Lead for Microprudential Supervision at the Federal
Reserve Bank of New York. He is also Professor at Nova School of Business and
Economics. His research interests include financial systems design, banking, banking
regulation and corporate finance. His articles have been published in various
academic journals including the Journal
of Finance, Review of Financial
Studies, Journal of Financial
Economics, Journal of Monetary
Economics, Journal of Accounting and
Economics, Journal of Money Credit
and Banking, European Economic Review, Journal of Financial Intermediation,
and the Review of Finance. He is a
Co-Editor of the Journal of Financial Intermediation, and an Associate Editor
of various journals including the Journal of Money Credit and Banking and the
Journal of Financial Services Research.
