Abstract
Abstract We show that capital requirements on small business loans (SBL) based on Basel Committee’s Internal Ratings Based (IRB) rules are too high relative to those for corporate loans (CL), as they are not based on actual SBL data. We argue that SBL are not put on a level playing field with CL, whose requirements were calibrated on historical data. We show that such a discrepancy has real effects, as disproportionately high capital requirements are linked to lower credit availability for small businesses. In order to treat CL and SBL proportionately to their correlated credit risk, the IRB rules should require 45% lower capital requirements on the latter.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
