[Research Seminar] IℚUANT: “Basel III joint regulatory contraints: Interactions and implications for the financing of the economy” C. POUVELLE – ACPR
Speaker: Cyril POUVELLE
Head of Research Unit, Risk Study and Analysis Department, ACPR
Date and Location – Thursday September 28th 2023 from 14:00 to 16:00 on Zoom
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ABSTRACT
This paper examines the impact of multiple regulatory constraints on the financing of the economy in the context of Basel III regulation on capital and liquidity. We propose a simple theoretical model of bank lending decision to analyze interactions between these multiple regulatory
requirements and the conditions under which some constraints bind while others do not. Building on the predictions of this model, we estimate the
impact of these multiple regulatory requirements on lending growth, on a panel of 120 French banks since 2014. Our results indicate that two pairwise interactions have a significant effect on lending growth. We find a significant and partial level of substitutability between ( i ) the risk based Tier 1 capital ratio and the leverage ratio as well as (ii) the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). We also note that the former interaction between the two liquidity ratios is even more pronounced in periods of financial stress.