The effect of bank capital requirements on bank off-balance sheet financial innovations

Julapa A. Jagtiani · Anthony Saunders · Gregory F. Udell

86 citations0/0 files storedJournal of Banking & Finance

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Banking stability, regulation, efficiency Finance, Markets, and Regulation finance, banking, and market dynamics

Abstract

A popular explanation for the explosive growth in banks' off-balance sheet (OBS) activities is the avoidance of capital adequacy requirements. Several studies have examined this and other motivations behind bank OBS activities with mixed results. We shed further light on the issue of OBS growth by modelling OBS products as financial innovations subject to a logistic diffusion adoption pattern. Our data also allows us to investigate the impact of important changes in capital adequacy regulations on OBS diffusion rates. We find that changes in capital requirements have had no consistent impact on the speed of diffusion across OBS activities.

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References

1961Technical Change and the Rate of Imitation 1994Did Risk-Based Capital Allocate Bank Credit and Cause a "Credit Crunch" in the United States?1981The Diffusion of Process Innovations 1980The Diffusion of Process Innovations.1991Risk-based capital and deposit insurance reform 1987Rival Precedence and the Dynamics of Technology Adoption: An Empirical Analysis 1987Why commercial banks sell loans: an empirical analysis 1987Securitization with recourse

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