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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
How do Capital Requirements Affect Loan Rates? Evidence from High Volatility Commercial Real Estate
David P. Glancy
Robert J. Kurtzman
Abstract

We study how bank loan rates responded to a 50% increase in capital requirements for a subcategory of construction lending, High Volatility Commercial Real Estate (HVCRE). To identify this effect, we exploit variation in the loan terms determining whether a loan is classified as HVCRE and the time that a treated loan would be subject to the increased capital requirements. We estimate that the HVCRE rule increases loan rates by about 40 basis points for HVCRE loans, indicating that a one percentage point increase in required capital raises loan rates by about 9.5 basis points.


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David P. Glancy & Robert J. Kurtzman, How do Capital Requirements Affect Loan Rates? Evidence from High Volatility Commercial Real Estate, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2018-079, Nov 2018.
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Keywords: Basel III ; Capital Requirements ; Commercial Real Estate
DOI: 10.17016/FEDS.2018.079
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