Internally-Assessed Bank Capital Requirements and Loan Portfolio Spreads.

The article "Internally-Assessed Bank Capital Requirements and Loan Portfolio Spreads" by Danilo V. Mascia delves into how banks' use of risk-sensitive capital requirements impacts customer borrowing costs. The study reveals that banks employing internal rating-based models tend to have higher loan portfolio spreads due to factors like limited competition, funding options for borrowers, and political connections. Despite expectations, these banks do not fully pass on reduced capital requirements to customers, resulting in increased borrowing costs. The research contributes to understanding the effects of regulatory constraints on IRB models and their influence on bank performance. [Extracted from the article]