Pasquale di Biase, Elisabetta D'Apolito

Basel 3 capital requirements and the cost of credit: an investigative exercise into the major Italian banks

  • Abstract

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Keywords: Capital Requirements; Credit Price; Banks.

This paper examines the impact of the new capital requirements introduced by Basel 3 on loan pricing. We will make use of the Discounted Cash Flow (DCF) model to assess the extent to which the aforementioned changes in the capital structure of banks can influence the average interest rate of bank loans. Estimates are based on data regarding the first five major Italian banking groups. The methodology implemented in this research paper suggests that each percentage point increase in the capital requirement can be offset by a correspondent increase in interest rates on loans amounting to between 0,032 to 0,113 basis points.

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