Credit channel and risk-based capital adequacy requirements
Introduction: Importance of bank lending in the propagation of exogenous shocks has been recognised in the literature. Such views are collectively called the credit view. The credit view is that a negative shock, e.g. a monetary tightening, restricts the availability of credit to borrowers, thereby affecting the real economy. The credit view consists of two different views, namely the “bank-lending view” and the “balance sheet view”. According to the “bank-lending view” banks cut back on...[Show more]
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