اثرات رقابتی بازل II در اعطای وام های کارت اعتباری بانک آمریکا
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|23293||2008||31 صفحه PDF||سفارش دهید||محاسبه نشده|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Financial Intermediation, Volume 17, Issue 4, October 2008, Pages 478–508
We analyze the potential competitive effects of the proposed Basel II capital regulations on US bank credit card lending. We find that bank issuers operating under Basel II will face higher regulatory capital minimums than Basel I banks, with differences due to the way the two regulations treat reserves and gain-on-sale of securitized assets. During periods of normal economic conditions, this is not likely to have a competitive effect; however, during periods of substantial stress in credit card portfolios, Basel II banks could face a significant competitive disadvantage relative to Basel I banks and nonbank issuers.
This paper analyzes the potential competitive effects of the proposed Basel II capital regulations on US bank credit card lending. Under Basel II, a small number of large US banking organizations would be required to use the advanced internal ratings-based (A-IRB) approach for credit risk and the advanced measurement approach (AMA) for operational risk. In addition to these “mandatory banks,” it is expected that a relatively small number of mostly large US banks are likely to “opt-in” to Basel II and use the A-IRB and AMA. However, the vast majority of other US banks would continue to operate under the current Basel I capital rules.1 The Basel I rules require the same minimum capital charge for all credit card exposures regardless of credit quality. In contrast, the Basel II rules are more risk sensitive with minimum capital requirements based on banks' internal estimates of the probability of default (PD), loss given default (LGD), and exposure at default (EAD). The Basel II proposal raises questions about the competitive positions of banks adopting Basel II relative to banks remaining under the current capital regime and relative to nonbank rivals. Some bankers, particularly community bankers, have expressed concern that Basel II banks would face lower capital requirements for various products (including credit cards) and therefore have a competitive advantage.2 Basel II will generate competitive effects only if the regulatory capital constraint is binding (i.e., for a given portfolio, minimum regulatory capital requirements cause banks to hold more capital than they would hold in the absence of the requirement). A central component of our analysis will be to determine whether regulatory capital requirements for credit card portfolios are currently binding or are expected to be binding under the proposed Basel II regime. Three caveats to our analysis are noteworthy. First, the analysis is based on the current Basel II proposal, which has not yet been written into US rules and is subject to revision as well as to changes in interpretation. Second, the analysis is based on the current Basel I rules, which may be modified before the effective date of Basel II. Third, our analysis focuses solely on the domestic US credit card market. We do not consider the potential competitive effects on international credit card operations. The remainder of the paper is organized as follows: Section 2 provides descriptive background on the most important features of the credit card industry. Section 3 describes the current and proposed regulatory capital framework. Section 4 lays out our analytical framework for assessing changes in regulatory capital standards. Section 5 analyzes whether regulatory capital requirements are currently binding or are expected to be binding under Basel II. Section 6 concludes and presents several likely reactions to the Basel II A-IRB framework that banks could have in response to the bifurcated capital regime.
نتیجه گیری انگلیسی
This paper has examined the potential competitive effects of Basel II proposals for minimum regulatory capital requirements on credit card exposures. First, credit cards are not a significant source of revenue or risk for community banks and most regional banks. So changes in regulatory capital costs for Basel II banks are not likely to have any measurable direct or indirect effect on community banks and most regional banks simply because these banks do not compete in this market. Second, nonbank companies typically issue credit card loans through a CCSB but have the option to hold the credit card assets at the nonbank parent. If the CCSB subsidiary of a nonbank credit card issuer opts in to the Basel II A-IRB approach, a nonbank company can effectively avoid the capital constraint by transferring more of its credit card assets to the nonbank parent. Given the ability of nonbank competitors to shift assets between the parent company and the banking subsidiary, we believe that nonbank competitors will not be harmed by the change in capital requirements and could benefit if bank competitors face a sufficiently large increase in capital requirements. Finally, regional banks that are involved in credit cards but that do not opt in to the Basel II A-IRB capital approach would face different regulatory capital minimums than the Basel II banks. Our analysis indicated that capital at CCSBs is currently far in excess of current regulatory requirements, as well as far higher than capital ratios at other banks, even after controlling for factors affecting the demand for capital. Indeed, capital positions at CCSBs appear to be driven by market pressures to maintain an adequate capital-to-managed-assets ratio rather than by regulatory requirements. Thus, the current Basel I regulatory capital standards do not appear to be binding at CCSBs. In most circumstances, CCSBs will operate with a zero credit conversion factor (CCF) for securitized credit card receivables. Under those circumstances, our estimates indicate that regulatory requirements for total capital would rise much more than the tier 1 requirements. While capital levels at CCSBs would remain above regulatory requirements, the buffer for total risk-based capital would be reduced substantially, and we cannot rule out that the total capital requirement would be binding for Basel II banks. Basel II's effect on tier 1 capital at CCSBs is more modest, and we think it unlikely that under normal economic conditions these banks would be required to raise additional tier 1 capital if they adopted the Basel II A-IRB approach. We believe that in most cases the level of tier 1 capital will remain sufficiently above the regulatory requirements and that market capital requirements will continue to be the primary determinant of the actual level of tier 1 capital. Even CCSBs operating under the Basel II rules that faced pressure to raise their tier 1 ratio would likely satisfy this by raising reserves, thereby reducing their reserve shortfall, which is deducted from Basel II tier 1 capital. Thus, to meet the higher minimum total capital requirement under Basel II rules, it is likely that CCSBs would either raise additional subordinated debt or increase their rate of securitization. Either of these actions has relatively modest cost implications for banks operating under Basel II. In contrast to periods of normal economic conditions, there is the possibility that credit card operations at Basel II banks would face a significant competitive disadvantage relative to issuers operating under Basel I rules during periods of substantial stress in credit card portfolios. Under those circumstances, the additional required capital generated by a positive CCF for securitized assets would be a substantial increase in the minimum capital requirement. However, we believe that this much larger requirement for credit card portfolios at Basel II banks exaggerates the difference in the “effective” capital requirement at Basel II and Basel I banks. In our view, banks operating under Basel I rules would see supervisory requirements that far exceeded the numerical minimums. In addition, the market capital requirements for credit card portfolios can also be expected to rise in periods when credit performance is poor. Given these conclusions we believe that banks will react to the changing capital requirements in several ways. First, the increased capital requirements for credit card portfolios under the proposed Basel II framework will deter some opt-in banks from adopting the Basel II capital standards. This effect will be greatest for banks with a large proportion of their assets in credit cards (particularly for opt-in independent monoline credit card banks). Second, capital-constrained (either tier 1 or total capital) Basel II banks will increase their level of securitization of credit card receivables. Although the proposed Basel II A-IRB framework adds a potential capital charge for the investors' share of CC-ABS, these capital charges are lower than if these assets were held on balance sheet (until the highly unlikely event of hitting the 100 percent CCF threshold, at which time the capital charges are equalized). Banks that are capital-constrained can reduce their risk-weighted assets by shifting assets off of the balance sheet, e.g., via securitization. We note that some banks already securitize a very high proportion of their managed credit card portfolio and so this option may not be available to them. Third, since Basel II banks are more likely to face a binding total regulatory capital requirement than a binding tier 1 regulatory capital requirement, the use of relatively cheap tier 2 capital will increase. Banks that currently hold reserves of less than one year's worth of expected losses will likely increase their reserves. Other banks will likely increase their use of subordinated debt instruments that qualify as tier 2 capital. Fourth, CC-ABS deal structures will likely be re-engineered to reduce deal-specific excess spread trapping points, thereby reducing potential capital charges associated with CC-ABS. As currently structured, excess-spread performance triggers lead to the funding of cash collateral accounts that provide a form of protection to investors in CC-ABS deals. Hitting these excess-spread performance triggers is unambiguously more expensive for banks under the proposed Basel II framework than under current capital rules, so banks have an incentive to reduce these triggers. Investors in CC-ABS have a stake in ensuring the continued viability of the CC-ABS servicer (typically the bank), so investors may also favor a reduction in these triggers. Furthermore, we believe that it may be possible to substitute another form of credit enhancement or other protection so that investors in CC-ABS are exposed to no additional risk despite lower trapping points relative to current deal structures. Fifth, under stress, there would be an increased incentive for a Basel II bank to engage in informal recourse to support its CC-ABS than for a bank operating under Basel I rules. The penalty for engaging in informal recourse is that a bank must bring its CC-ABS portfolio back on balance sheet. Under Basel II A-IRB rules, a bank must progressively bring CC-ABS deals back on balance sheet as performance deteriorates. This implies that Basel II banks will face lower de facto penalties for engaging in informal recourse to support their CC-ABS than banks facing Basel I capital rules. And finally, nonbank competitors with banking subsidiaries that opt in to the Basel II A-IRB framework will be more likely to transfer credit cards from the banking subsidiary to the parent organization to avoid capital requirements. In particular, nonbank competitors will be more likely to issue CC-ABS at the parent level than at the bank level.