We study the impact of higher capital requirements on banks' decisions to grant collateralized rather than uncollateralized loans. We exploit the 2011 EBA capital exercise, a quasi-natural experiment that required a number of banks to increase their regulatory capital but not others. This...

This paper addresses the trade-off between additional loss-absorbing capacity and potentially higher bank risk-taking associated with the introduction of the Basel III leverage ratio. This is addressed in both a theoretical and empirical setting. Using a theoretical micro model, we show that a...

We investigate how counterparties' characteristics, and the collateral they use, interact with their demand for liquidity in the Bank of England's (BoE) operations. Between 2010 and 2016 there was regular usage of two BoE facilities: Indexed Long-Term Repos (ILTR) and the Funding for Lending...

Default correlation is a key driver of credit risk. In the Basel regulatory framework it is measured by the asset value correlation parameter. Though past studies suggest that the parameter is over-calibrated for mortgages — generally the largest asset class on banks' balance sheets — they...

Using exogenous variation in exposure to hurricanes, this article explores how differently diversified US banks lend during the protracted recovery from a major downturn. Compared to diversified banks, local banks (i) originate a higher share of new mortgage and small business loans in affected...

Since Basel II was introduced in 2008, two approaches to calculating bank capital requirements have co-existed: lenders' internal models, and a less risk-sensitive standardised approach. Using a unique dataset covering 7 million UK mortgages for 2005–15, and novel identification, we provide...

How can macroeconomic tail risks originating from financial vulnerabilities be monitored systematically over time? This question lies at the heart of operationalising the macroprudential policy regimes that have developed around the world in response to the global financial crisis. Using...

The large-value payment system in the United Kingdom (CHAPS) is highly tiered: a few settlement banks make payments on behalf of many customer banks. This paper makes use of a simulation approach to quantify by how much tiering affects, on the one hand, concentration and credit risk and, on the...

This paper examines how banks' asset risk is affected by the level (i.e. group or business unit) at which regulatory requirements are applied. We develop a theoretical model and calibrate it to UK banks. Our main finding is that the impact differs depending on which regulatory constraint is...

We model the evolution of stylised bank loan portfolios to assess the impact of IFRS 9 and US GAAP expected loss model (ECL) on the cyclicality of loan write-off losses, loan loss provisions (LLPs) and capital ratios of banks, relative to the incurred loss model of IAS 39. We focus on the...