Banks Forced to Hold More Capital Won’t Cut Loans, Report Says

Publication: Bloomberg

Author: Michael J. Moore

09/24/2009 - U.S. banks won’t reduce lending if they are required to increase capital because the additional cushion for losses will lower their cost of funds, according to a paper by the Pew Financial Reform Project.

Banks would maintain lending volume and raise capital rather than reduce assets to achieve the required capital ratios, according to the paper by Douglas Elliott, a fellow in economic studies at the Brookings Institution in Washington.

The analysis suggests that regulators may be able to force lenders to hold more capital without depriving consumers and businesses of credit. At the Group of 20 meeting in Pittsburgh beginning today, President Barack Obama will seek a consensus on setting higher capital requirements for lenders.

Read the full article Banks Forced to Hold More Capital Won’t Cut Loans, Report Says on the Bloomberg Web site.

Pew is no longer active in this line of work, but for more information, visit the main Pew Financial Reform page.

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