Showing papers on "Credit reference published in 2012"
TL;DR: This paper studied the sensitivity of credit supply to bank financial conditions in 16 emerging European countries before and during the financial crisis and found that firms' access to credit was affected by changes in the financial conditions of their banks.
442 citations
TL;DR: This article found that firms with traded CDS contracts on their debt are able to maintain higher leverage ratios and longer debt maturities during periods in which credit constraints become binding, as would be expected if the ability to hedge helps alleviate frictions on the supply side of credit markets.
Abstract: Does the ability of suppliers of corporate debt capital to hedge risk through credit default swap (CDS) contracts impact firms' capital structures? We find that firms with traded CDS contracts on their debt are able to maintain higher leverage ratios and longer debt maturities. This is especially true during periods in which credit constraints become binding, as would be expected if the ability to hedge helps alleviate frictions on the supply side of credit markets.
219 citations
TL;DR: This article used bank-level responses to the Federal Reserve's Loan Officer Opinion Survey to construct a new credit supply indicator: changes in lending standards, adjusted for the macroeconomic and bank-specific factors that also affect loan demand.
200 citations
Posted Content•
TL;DR: In this article, the role of bank and trade credits in a supply chain with a capital constrained retailer facing demand uncertainty is investigated, and the retailer's optimal order quantity and the creditors' optimal credit limits and interest rates in two scenarios where either a single credit or both credits are viable.
Abstract: This paper investigates the roles of bank and trade credits in a supply chain with a capital constrained retailer facing demand uncertainty. The retailer can borrow credit from a bank (bank credit), and/or from the supplier who allows delayed payment (trade credit). We evaluate the retailer’s optimal order quantity and the creditors’ optimal credit limits and interest rates in two scenarios where either a single credit or both credits are viable. In the single-credit scenario, we find the retailer prefers trade credit, if the trade credit market is more competitive than the bank credit market; otherwise, the retailer’s preference of a specific credit type depends on the risk levels that the retailer would divert trade credit and bank credit to other risky investment. In the dual-credit scenario, if the bank credit market is more competitive than the trade credit market, the retailer first borrows bank credit prior to trade credit, but then switches to borrowing trade credit prior to bank credit as the retailer’s internal capital declines. In contrast, if the trade credit market is more competitive, the retailer borrows only trade credit. We further analytically prove that the two credits are complementary if the retailer’s internal capital is substantially low but become substitutable as the internal capital grows, and then empirically validate this prediction based on a panel of 674 manufacturing firms in China over the period 2001–2007.
194 citations
Patent•
15 May 2012
TL;DR: In this paper, an online system uses credit report information, loan affordability screening and credit approval and management functionality to facilitate the purchase and finance of products online, including both sellers of products and lenders that offer financing to buyers seeking to purchase the products.
Abstract: An online system uses, in various embodiments of the invention, credit report information, loan affordability screening and credit approval and management functionality to facilitate the purchase and finance of products online. The online system may include both sellers of products and lenders that offer financing to buyers seeking to purchase the products. The system may automatically obtain a buyer's credit report information and use that information to determine if the buyer is pre-approved, for example, to obtain financing for a particular product or products. The system also enables use of buyer credit information to identify only those of a seller's products for which the buyer is pre-approved, for example, to finance using one or more loans. The system then enables selection of an identified product or products for purchase, and selection of a loan, for example, for financing of the selected product or products. Credit approval (or pre-approval) may be performed automatically, and along with credit processing, may be performed completely online.
186 citations
TL;DR: This paper analyzed the role of down payment requirements in screening high-risk borrowers and limiting defaults in subprime consumer lending and developed an empirical model of the demand for financed purchases that incorporates both adverse selection and repayment incentives.
Abstract: We analyze subprime consumer lending and the role played by down payment requirements in screening high-risk borrowers and limiting defaults. To do this, we develop an empirical model of the demand for financed purchases that incorporates both adverse selection and repayment incentives. We estimate the model using detailed transaction-level data on subprime auto loans. We show how different elements of loan contracts affect the quality of the borrower pool and subsequent loan performance. We also evaluate the returns to credit scoring that allows sellers to customize financing terms to individual applicants. Our approach shows how standard econometric tools for analyzing demand and supply under imperfect competition extend to settings in which firms care about the identity of their customers and their postpurchase behavior.
178 citations
01 Jan 2012
TL;DR: In this paper, the impact of credit risk on the profitability of Nigerian banks was analyzed using Descriptive, Correlation and Regression techniques, which revealed that credit risk management has a significant impact on profitability of Nigeria banks, therefore, management need to be cautious in setting up a credit policy that might not negatively affect profitability.
Abstract: Recently banks witnessed rising non-performing credit portfolios and these significantly contributed to financial distress in the banking sector. Banks collect deposits and lends to customers but when customers fail to meet their obligations problems such as non-performing loans arise. This study evaluates the impact of credit risk on the profitability of Nigerian banks. Financial ratios as measures of bank performance and credit risk were the data collected from secondary sources mainly the annual reports and accounts of sampled banks from 2004 - 2008. Descriptive, correlation and regression techniques were used in the analysis. The findings revealed that credit risk management has a significant impact on the profitability of Nigeria banks. Therefore, management need to be cautious in setting up a credit policy that might not negatively affects profitability and also they need to know how credit policy affects the operation of their banks to ensure judicious utilization of deposits.
178 citations
TL;DR: In this article, the authors report a mixed method analysis of the integration of environmental risks into the credit management of Canadian banks, concluding that Canadian banks are proactive regarding environmental examinations of loans and that there is a need for a more accountancy related reporting on environmental risk management in financial institutions.
Abstract: How do Canadian banks integrate environmental risks into corporate lending and where are they located compared with their global peers? In this paper we report a mixed method analysis of the integration of environmental risks into the credit management. The qualitative and quantitative analyses suggest that all analyzed Canadian commercial banks, credit unions and Export Development Canada manage environmental risks in credit management to avoid financial risks. Some of the institutions even connect environmental and sustainability issues with their general business strategies. Compared with other countries, Canadian banks are best in class, as all six Canadian commercial banks, comprising over 90 percent of Canadian assets, systematically examine environmental risks for credits, loans and mortgages. We conclude that Canadian banks are proactive regarding environmental examinations of loans and that there is a need for a more accountancy related reporting on environmental risk management in financial institutions. Further research is needed to be able to calculate costs and benefits of integrating environmental and sustainability issues into the credit risk management. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.
154 citations
TL;DR: In this paper, the authors find evidence that an Indian judicial reform that increased banks’ ability to recover nonperforming loans had such an adverse distributive impact that it may reduce credit access for small borrowers and expand it for wealthy borrowers.
Abstract: It is generally presumed that stronger legal enforcement of lender rights increases credit access for all borrowers because it expands the set of incentive compatible loan contracts. This result relies on an assumption that the supply of credit is infinitely elastic. In contrast, with inelastic supply, stronger enforcement generates general equilibrium effects that may reduce credit access for small borrowers and expand it for wealthy borrowers. In a firm-level panel, we find evidence that an Indian judicial reform that increased banks’ ability to recover nonperforming loans had such an adverse distributive impact.
136 citations
TL;DR: In this article, the authors focus on the access of independent French SMEs to bank lending and analyzes whether the observed evolution of credit to SMEs over the recent period was demand driven as a result of the decrease in firms' activity and investment projects or was "supply driven" with an increase in credit rationing stemming from a more cautious behavior of banks.
Abstract: This paper focuses on the access of independent French SMEs to bank lending and analyzes whether the observed evolution of credit to SMEs over the recent period was "demand driven" as a result of the decrease in firms' activity and investment projects or was "supply driven" with an increase in credit "rationing" stemming from a more cautious behavior of banks. Based on a sample of around 60,000 SMEs, we come to the conclusion that, despite the stronger standards used by banks when granting credit, French SMEs do not appear to have been strongly affected by credit rationing since 2008. This result goes against the common view that SMEs suffered from a strong credit restriction during the crisis but is perfectly in line with the results of several surveys about the access to finance of SMEs recently conducted in France.
133 citations
Book•
07 Sep 2012
TL;DR: In this article, the authors present the wiley finance series and collections to check out, including fiction, history, novel, scientific research, as well as various new sorts of books.
Abstract: Right here, we have countless ebook counterparty credit risk and credit value adjustment a continuing challenge for global financial markets the wiley finance series and collections to check out. We additionally pay for variant types and then type of the books to browse. The gratifying book, fiction, history, novel, scientific research, as well as various new sorts of books are readily easy to get to here.
TL;DR: This paper found that firms in financial distress use a significantly larger amount of trade credit to substitute for alternative sources of financing, and that firms that are smaller, with less market power and with more unique products tend to use more trade credit financing when in distress.
Abstract: This paper studies the use of supplier's trade credit by firms in financial distress. Trade credit represents a large portion of firms’ short-term financing and plays an important role in financial distress. We find that firms in financial distress use a significantly larger amount of trade credit to substitute for alternative sources of financing. Firms that are smaller, with less market power, and with more unique products tend to use more trade credit financing when in distress. We also find that firms that significantly increase their trade payables when in financial distress, experience an additional drop of at least 11% in sales and profitability growth over the previously documented 21% average drop for financially troubled firms.
TL;DR: In this article, the coexistence of formal and informal finance in underdeveloped credit markets is studied and it is shown that informal lenders can prevent non-diligent behavior but often lack the needed capital.
Abstract: I study the coexistence of formal and informal finance in underdeveloped credit markets. Formal banks have access to unlimited funds but are unable to control the use of credit. Informal lenders can prevent non-diligent behavior but often lack the needed capital. The model implies that formal and informal credit can be either complements or substitutes. The model also explains why weak legal institutions raise the prevalence of informal finance in some markets and reduce it in others, why financial market segmentation persists, and why informal interest rates can be highly variable within the same sub economy.
TL;DR: In this paper, the authors show that credit constrained firms that face liquidity shocks are more likely to default on their payments to suppliers and that the chain of defaults stops when it reaches unconstrained firms.
Abstract: Using a unique data set on French firms, we show that credit constrained firms that face liquidity shocks are more likely to default on their payments to suppliers. Credit constrained firms pass on a sizeable fraction of such shocks to their suppliers. This is consistent with the idea that firms provide liquidity insurance to each other and that this mechanism is able to alleviate credit constraints. We show that the chain of defaults stops when it reaches unconstrained firms. Liquidity appears to be allocated from firms with access to outside finance to credit constrained firms along supply chains.
Abstract: Due to growing competition, over-indebtedness, and economic crises, microfinance institutions have to pursue their social and financial objectives in an increasingly constrained environment. Developing powerful risk management tools becomes more than ever crucial to survive. Therefore this paper analyzes whether microfinance institutions can benefit from credit scoring, which has been successfully adopted in retail banking. An extensive literature overview is provided, indicating a lack of quantitative evidence, in particular for markets in Eastern Europe-Central Asia and the Middle East-Northern Africa. Two logistic regression-based scoring models are developed using data from a Bosnia–Herzegovinian microlender. The models are assessed in terms of stability, readability, and discriminatory power, indicating that credit scoring is not yet able to fully replace the human-intensive microfinance credit process. However, it is recommendable to introduce credit scoring as a refinement tool in the lending process, in order to combine both statistical and human best practices. Moreover, a microlender staff can learn from credit scoring models to validate or contrast practical intuition.
TL;DR: In this paper, the authors develop measures of comparability relevant to debt market participants based on the within-industry variability of Moody's adjustments to reported accounting numbers for the purposes of credit rating.
Abstract: Prior research shows that firms' financial statement comparability improves the accuracy of market participants' valuation judgments and thus may reduce firms' costs of capital. Distinct from prior research focusing on the equity market, we develop measures of comparability relevant to debt market participants based on the within-industry variability of Moody's adjustments to reported accounting numbers for the purposes of credit rating. We examine two sets of adjustments: (1) to the interest coverage ratio and (2) for non-recurring income items. We validate these comparability measures by providing evidence that greater comparability is associated with lower frequency and magnitude of split ratings by credit rating agencies. We predict and find that greater comparability is associated with: (1) lower estimated bid-ask spreads for traded bonds, (2) lower credit spreads for both bonds and five-year credit default swaps, and (3) a steeper one- to five-year credit default swap term structure. Our results are consistent with financial statement comparability reducing debt market participants' uncertainty about and pricing of firms' credit risk.
TL;DR: In this article, the authors study whether the involvement of a firm's main bank into different types of securitization activity (ABS and covered bonds) influences credit supply before and during the 2007-8 financial crisis.
Abstract: Banks have been heavily involved in securitization. We study whether the involvedness of a firm’s main bank into different types of securitization activity – asset backed securities (ABS) and covered bonds – influences credit supply before and during the 2007-8 financial crisis. Both types of securitization allow the bank to generate liquidity. To the extent that ABS activity lowers lending standards in normal times, banks with more ABS activity may reduce their lending more in crisis times as an ex-post effect of a previously higher risk adoption. Employing a disequilibrium model to identify credit rationing, we find that a longer relationship with a firm’s main bank considerable improve credit supply. In general, we find that a relationship with a bank that is more involved in securitization activities relaxes credit constraints in normal periods. In contrast, while a relationship with a firm’s main bank that issues covered bonds reduces credit rationing during crisis periods, the issuance of asset backed securities by a firm’s main bank aggravates these firm’s credit rationing in crisis periods.
TL;DR: In this article, the authors analyzed access to and adequacy of credit for smallholders with landholdings up to 5 acres (2.5ha) using primary data collected through a survey of 208 households, focus-group discussions and unstructured interviews.
Abstract: The Government of Pakistan has implemented a policy of food security for smallholders by making provision of credit needed for purchasing inputs such as farm machinery, fertilizer and seed. This study analyzed access to and adequacy of credit for smallholders with landholdings up to 5 acres (= 2 ha), using primary data collected through a survey of 208 households, focus-group discussions and unstructured interviews. The findings revealed a partial success of the national credit policy in terms of the proportion of households having access to formal credit but appeared less successful when this was compared with the total amount of credit demanded and obtained. Among the three types of smallholders compared, i.e. lower-smallholders (≤1.0 acre), middle-smallholders (1.01–2.50 acres) and upper-smallholders (2.51–5.00 acres), the lower-smallholders obtained least benefit from the policy as reflected in the formal credit accounting for 12% of the total credit obtained and only 6% of the total credit demanded. The other two types of smallholders had relatively better access to formal credit. Due to a lack of access to adequate formal credit, informal sources have continued to play a major role in the credit market. The causes for this are explained and relevant policy recommendations are made for improving smallholders’ access to credit in the study area and elsewhere in Pakistan. It is hoped that the findings of this study will make a useful contribution to the understanding and remedying of the difficulties that smallholders experience in obtaining credit which may be of value not only in Pakistan but in other developing countries.
Posted Content•
TL;DR: In this paper, the authors examined the credit scores and financial reporting quality of a large sample of UK private firms which qualified for audit exemption after major threshold changes in 2004 and found that, even though they report lower average profits, companies which retain a voluntary audit enjoy significantly higher credit scores than those which opt out of audit.
Abstract: After a long period of universal mandatory audit, the UK reduced the regulatory burden of private firms by introducing size-based audit exemption in 1994; the size thresholds have subsequently been progressively increased. Both accounting bodies and credit rating agencies have expressed reservations about this policy, arguing it could diminish user confidence in reported accounting numbers, and lead to a reduction in financial statement quality and credit ratings. Prior research, however, suggests that the managers of small UK companies do not perceive there to be an association between financial statement audit and firm credit score. To provide evidence of any effect on user confidence of making audit optional, we examine the credit scores and financial reporting quality of a large sample of UK private firms which qualified for audit exemption after major threshold changes in 2004. We find that, even though they report lower average profits, companies which retain a voluntary audit enjoy significantly higher credit scores than those which opt out of audit. The results of both conservatism and accruals-based tests indicate that opting out of audit is associated with less conservative financial reporting, consistent with the concerns of the accounting bodies and the credit rating agencies, and providing an explanation for why opt out firms report higher profits but receive lower credit scores. This study contributes to an important policy debate by providing large sample evidence that the audit does confer benefits to private firms in terms of financial reporting quality, assurance, and the credit scores generated from the financial reports.
TL;DR: In this article, the effect of the 2007-2008 financial crisis on between-firm liquidity provision was studied using a supplier-client matched sample, and the authors found that firms with high pre-crisis liquidity levels increased the trade credit extended to other corporations and subsequently experienced better performance as compared to ex-ante cash-poor firms.
Abstract: Using a supplier-client matched sample, we study the effect of the 2007-2008 financial crisis on between-firm liquidity provision. Consistent with a causal effect of a negative shock to bank credit, we find that firms with high pre-crisis liquidity levels increased the trade credit extended to other corporations and subsequently experienced better performance as compared to ex-ante cash-poor firms. Trade credit taken by constrained firms increased during this period. These findings are consistent with firms providing liquidity insurance to their clients when bank credit is scarce and provide an important precautionary savings motive for accumulating cash reserves.
TL;DR: In this article, an overview of the issues and problems in the economics and finance liter- ature is presented, and a concrete, simple approach is identified of how to incorporate banks into a macroeconomic model that solves many of these issues.
TL;DR: In this article, the authors proposed a conceptual model to examine the factors determining the Islamic credit card usage intention, and evaluated the model using survey data from 354 respondents with the help of a questionnaire.
Abstract: Purpose – The purpose of this paper is to analyze the probability of Islamic credit card usage intention among Islamic banks' customers. Financial cost, knowledge of Islamic credit card, attitude, financial recommendation and demographic items were examined in order to determine whether these factors are influencing the Islamic credit card usage intention or not.Design/methodology/approach – Drawing upon the theory of reasoned action (TRA), this study proposes a conceptual model to examine the factors determining the Islamic credit card usage intention. The research model is evaluated using survey data from 354 respondents with the help of a questionnaire.Findings – The results reveal that “financial recommendation”, “knowledge on Islamic credit card”, “age (young)”, “marital status”, “religion” and “education level” are significantly affecting the Islamic credit card usage intention. The research also concludes that “attitude on Islamic credit card” appears to have no effect on the Islamic credit card us...
Posted Content•
TL;DR: In this paper, the authors investigate the effects of public and private credit registries on firms' access to finance as well as the effect of public credit registry design on the severity of the financing constraint.
Abstract: Using new data from 42 African countries, we investigate the effects of public and private credit registries on firms’ access to finance as well as the effect of public credit registries’ design on the severity of the financing constraint. Our results show that access to finance is on average higher in countries with private credit bureaus (PCBs), relative to countries with public credit registries (PCRs) or countries with neither institution. However, there is a significant heterogeneity in access to finance among countries with PCRs as well as the design of these institutions. We find that countries with PCRs that collect positive and negative information on borrowers’ credit histories are associated with firms reporting smaller obstacles in access to finance. Likewise, we show that provision of online credit information is only beneficial when the internet penetration rate in the country is high and that reducing minimum cut-off for loan coverage by PCRs helps soften the financing constraint only when positive and negative information is provided.
22 Mar 2012
TL;DR: In this article, the authors analyze several aspects of the trade credit agreement and discuss several aspects that make trade credit a unique and not fully contractual arrangement, whose value depends to a great extent on the value of the commercial relationship between the supplier and the buyer.
Abstract: Recent research has found evidence of the central role of trade credit in the financing of small businesses. In the United States, for example, trade credit is used by about 60 percent of small businesses; such a large incidence of use is not observed in any other financial service except checking accounts. This article analyzes several aspects of the trade credit agreement. It starts by explaining why trade credit is such an extended phenomenon in spite of the existence of a specialized financial sector. Then it discusses several aspects that make trade credit a unique and not fully contractual arrangement, whose value depends to a great extent on the value of the commercial relationship between the supplier and the buyer. It then focuses on the value of trade credit for entrepreneurial firms.
TL;DR: In this article, the authors develop a model to analyze the effects of credit protection (e.g., credit insurance, guarantees, credit default swaps) on the provision of incentives to borrowers.
Abstract: We develop a model to analyze the effects of credit protection (e.g., credit insurance, guarantees, credit default swaps) on the provision of incentives to borrowers. Credit protection insulates lenders against losses when liquidating non--performing borrowers' projects. This hardens borrowers' budget constraints, which can have positive implications for incentives. However, credit risk transfer also dilutes the joint surplus of the bank-borrower coalition, thereby making it less worthwhile to implement high effort. The tradeoff between the costs and benefits of risk transfer has implications for the optimal design of credit protection vehicles.
TL;DR: In this paper, the authors proposed a new approach to credit ratings undertaken by the Risk Management Institute at the National University of Singapore that is predicated on the provision of credit ratings as a public good.
Abstract: From the onset of the 2008–2009 financial crisis to the subsequent European sovereign debt crisis, credit rating agencies have been assigned considerable blame. Reforming the credit rating industry has hence become an important policy issue. In addition to the regulatory efforts in the context of accepting the for-profit business model of ratings, there is a growing realization that credit ratings bear the characteristics of a public good . Financial market participants need reliable, transparent and independent assessment of credit risks. Credit ratings are therefore better viewed as an infrastructure matter. However, the proposed regulations seem to have missed this point. This paper introduces a new approach to credit ratings undertaken by the Risk Management Institute at the National University of Singapore that is predicated on the provision of credit ratings as a public good . With a public good alternative in place, the currently predominant for-profit business model may be counterbalanced.
TL;DR: In this article, it is argued that formalizing property titles alone will not solve the problem of limited access to credit in the developing world in the absence of formally registered land titles.
Abstract: Many households and businesses in developing countries are said to face credit constraints which limit their ability to undertake investments in various production-enhancing economic activities required to reduce poverty. This limited access to formal credit is often attributed to the lack of ‘acceptable’ collateral, resulting from the absence of formally registered land titles. Despite the fact that this assertion is fast gaining ground, land registration has not been found empirically to positively influence access to credit. This article seeks to critically examine the above argument and provide credible theoretical explanations as to why previous studies in the developing world have failed to establish any significant positive link between land registration and access to credit. It is argued that formalising property titles alone will not be enough solve the problem of limited access to credit in the developing world.
TL;DR: In this paper, the authors investigated the usage and effects of loan sales, securitization, and credit derivatives in U.S. commercial banks over the last decade, with special emphasis on the financial crisis.
Abstract: Following the debate on the role of credit risk transfer (CRT) in exacerbating the 2007–2009 crisis, this paper investigates the usage and effects of loan sales, securitization, and credit derivatives in U.S. commercial banks over the last decade, with special emphasis on the financial crisis. We find that in times of severe funding constraints, the need to raise financial resources becomes the principal incentive behind CRT. We document some beneficial effects of CRT on the economy, since the funds released through CRT are subsequently invested by banks to sustain credit supply, also in recession. However, we report higher overall riskiness in banks that engage intensively in loans sales and securitization, which translates into higher default rates during the crisis. Interestingly, the benefits and drawbacks of CRT are much stronger for loan sales and securitization than for credit derivatives.
TL;DR: In this paper, the authors used a unique, comprehensive sample covering 901 CDS introductions on North American corporate issuers between June 1997 and April 2009 to address the question of whether trading in credit default swaps (CDS) increases the credit risk of the reference entities.
Abstract: Concerns have been raised, especially since the global financial crisis, about whether trading in credit default swaps (CDS) increases the credit risk of the reference entities. We use a unique, comprehensive sample covering 901 CDS introductions on North American corporate issuers between June 1997 and April 2009 to address this question. We present evidence that the probability of credit rating downgrade and the probability of bankruptcy both increase after the inception of CDS trading. The effect is robust to controlling for the endogeneity of CDS introduction, i.e., the possibility that firms with upcoming deterioration in creditworthiness are more likely to be selected for CDS trading. We show that the CDS-protected lenders' reluctance to restructure is the most likely cause of the increase in credit risk. We present evidence that firms with relatively larger amounts of CDS contracts outstanding, and those with more "No Restructuring" contracts, are more likely to be adversely affected by CDS trading. We also document that CDS trading increases the level of participation of bank lenders to the firm. Our findings are broadly consistent with the predictions of the "empty creditor" model of Bolton and Oehmke (2011).
TL;DR: In this paper, the authors examined micro evidence on the effect of bank capital requirements on loan supply by regulated banks and unregulated substitute sources of credit on changes in credit supply by affected banks.
Abstract: The regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro-prudential regimes internationally. For such regulation to be effective in controlling the aggregate supply of credit it must be the case that: (i) changes in capital requirements affect loan supply by regulated banks, and (ii) unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks. This paper examines micro evidence--lacking to date--on both questions, using a unique dataset. In the UK, regulators have imposed time-varying, bank-specific minimum capital requirements since Basel I. It is found that regulated banks (UK-owned banks and resident foreign subsidiaries) reduce lending in response to tighter capital requirements. But unregulated banks (resident foreign branches) increase lending in response to tighter capital requirements on a relevant reference group of regulated banks. This "leakage" is substantial, amounting to about one-third of the initial impulse from the regulatory change.