Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/210705
Authors: 
Plosser, Matthew C.
Santos, João A. C.
Year of Publication: 
2018
Series/Report no.: 
Staff Report No. 853
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.
Subjects: 
Basel accords
capital regulation
cost of capital
loan spreads
JEL: 
G21
G28
Document Type: 
Working Paper

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