Skip to main content
SpringerLink
Log in

SME Credit Access After Basel III. Does Size (and Quality) Matter?

  • Chapter
  • First Online:
Access to Bank Credit and SME Financing

Abstract

We address the estimation of asset correlation for credit risk assessment in the Italian market and its impact on SME credit access. The empirical evidence demonstrates that assumptions underlying the regulatory capital formula are not substantiated, and benefits received from the respect of granularity could be reduced or even removed. This outcome could depend on the positive relationship between asset correlation and default probability, the negative relationship between asset correlation and size and the positive link between default correlation and default probability. The regulatory impact is that the goal of levelling the playing field could fail, a regulatory arbitrage opportunity could be created and certain firms, clustered by size and industry, could suffer from the credit crunch.

JEL Classification: G21, G28, G32

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 129.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 169.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 169.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Allen, L., DeLong, G., & Saunders, A. (2004). Issues in the credit risk modelling of retail markets. Journal of Banking and Finance, 28(4), 727–752.

    Article  Google Scholar 

  • Altman, E. I., & Saunders, A. (2001). An analysis and critique of the BIS proposal on capital adequacy and ratings. Journal of Banking and Finance, 25(1), 25–46.

    Article  Google Scholar 

  • Bandyopadhyay, A., Tasneem, C., & Asish, S. (2007). Calibrating asset correlation for Indian corporate exposures. Implications for regulatory capital. The Journal of Risk Finance, 8(4), 330–348.

    Article  Google Scholar 

  • Basel Committee. (2004, June). International convergence of capital measurement and capital standards. A revised framework. Basel: Basel Committee on Banking Supervision.

    Google Scholar 

  • Basel Committee. (2016, March). Reducing variation in credit risk-weighted assets – Constraints on the use of internal model approach, Consultative Document. Basel: Bank for International Settlements.

    Google Scholar 

  • Beck, T., Levine, R., & Loayza, N. (2000). Finance and the sources of growth. Journal of Financial Economics, 58(1), 261–300.

    Article  Google Scholar 

  • Berger, N. A., Frame, W. S., & Miller, H. N. (2005). Credit scoring and the availability, price, and risk of small business credit. Journal of Money, Credit and Banking, 37(2), 191–222.

    Article  Google Scholar 

  • Bernanke, B., & Gertler, M. (1996). The financial accelerator and the flight to quality. Review of Economics and Statistics, 78(1), 1–15.

    Article  Google Scholar 

  • Calem, P. S. & LaCour-Little, M. (2001). Risk-based capital requirements for mortgage loans (The Federal Reserve Board, Financial and Economics Discussion Series, Working Paper 2001–60).

    Google Scholar 

  • Carey, M. (2000). Dimensions of credit risk and their relationship to economic capital requirements (National Bureau of Economic Research, Working Paper Series No. 7629), pp. 1–39.

    Google Scholar 

  • Carey, M., & Hrycay, M. (2001). Parameterizing Credit Risk models with rating Data. Journal of Banking and Finance, 25(1), 197–270.

    Article  Google Scholar 

  • Carling, K., Jacobson, T., Lindé, J., & Roszbach, K. (2002). Capital charges under Basel 2: Corporate credit risk modelling and the macroeconomy (Working Paper Sveriges Riksbank No. 145).

    Google Scholar 

  • Cassart, D., Castro D., Langendries, R., & Alderweireld, T. (2007). Confidence Set for Asset Correlation, Mimeo.

    Google Scholar 

  • Das, S. J., Duffie, D., Kapadia, N., & Saita, L. (2007). Common failings: How corporate defaults are correlated. Journal of Finance, 62(1), 93–117.

    Article  Google Scholar 

  • De Servigny, A., & Renault, O. (2002). Default correlation: Empirical evidence (Working Paper, Standard and Poor’s).

    Google Scholar 

  • Degryse, H., & Ongena, S. (2005). Distance, lending relationship and competition. Journal of Finance, 60(1), 231–266.

    Article  Google Scholar 

  • Dietsch, M., & Petey, J. (2002). The credit risk in SME loans portfolios: Modelling issues, pricing and capital requirements. Journal of Banking and Finance, 26(2), 303–322.

    Article  Google Scholar 

  • Dietsch, M., & Petey, J. (2004). Should SME exposures be treated as retail or corporate exposures? A comparative analysis of default probabilities and asset correlations in French and German SMEs. Journal of Banking and Finance, 28(4), 773–788.

    Article  Google Scholar 

  • Duan, J. C., Gauthier, G., Simonato, J. G., & Zaanoun, S. (2003). Estimating Merton’s model by maximum likelihood with survivorship consideration (Working Paper, University of Toronto).

    Google Scholar 

  • Düllmann, K., Küll, J., & Kunisch, M. (2010). Estimating asset correlations from stock prices or default rates – Which method is superior? Journal of Economic Dynamics & Control, 34(11), 2341–2357.

    Article  Google Scholar 

  • ECB, (2014). Survey on the access to finance of small and medium-Sized enterprises in the euro area. European Central Bank. Frankfurt, April.

    Google Scholar 

  • Fitch Ratings. (2005). A comparative empirical study of asset correlations. New York: Mimeo.

    Google Scholar 

  • Gabbi, G. & Vozzella, P., (2013). Asset Correlation and Bank Capital Adequacy. European Journal of Finance 19 (1), 55–74.

    Google Scholar 

  • Glennon, D., & Nigro, P. (2003). An analysis of SBA loan defaults by maturity structure. Washington, DC: Mimeo.

    Google Scholar 

  • Gordy, M., & Heitfield, E. (2002). Estimating default correlations from short panels of credit rating performance data (Working Paper, Federal Reserve).

    Google Scholar 

  • Hamerle, A., Liebig, T., & Rösch, D. (2003). Credit risk factor modeling and the basel 2 IRB approach (Deutsche Bundesbank Discussion Paper).

    Google Scholar 

  • Jacobson, T., Lindé J., & Roszbach K. (2002). Credit risk versus capital requirements under Basel 2: Are SME loans and retail credit really different? Mimeo

    Google Scholar 

  • King, R. G., & Levine, R. (1993). Finance, entrepreneurship, and growth: Theory and evidence. Journal of Monetary Economics, 32(3), 513–542.

    Article  Google Scholar 

  • Kocagil, A. E., & Liu, J. (2008). Empirical assessment of asset correlations. In A. Resti (Ed.), Pillar II in the new basel accord. The challenge of economic capital. London: Risk Books.

    Google Scholar 

  • Lopez, J. A. (2004). The empirical relationship between average asset correlation, firm probability of default and asset size. Journal of Financial Intermediation, 13(2), 265–283.

    Article  Google Scholar 

  • OECD. (2009). The impact of the global crisis on SME and entrepreneurship financing and policy responses. Paris: OECD.

    Google Scholar 

  • Perli, R., & Nayda, W. I. (2004). Economic and regulatory capital allocation for revolving retail exposures. Journal of Banking and Finance, 28(4), 789–809.

    Google Scholar 

  • Petersen, M. A. (2004). Information: Hard and soft, Kellogg School of Management, Northwestern University, Mimeo.

    Google Scholar 

  • Petersen, M., & Rajan, R. (2002). Does distance still matter? The information revolution in small business lending. Journal of Finance, 57(6), 2533–2570.

    Article  Google Scholar 

  • Schmit, M. (2004). Credit risk in the leasing industry. Journal of Banking and Finance, 28(4), 811–833.

    Article  Google Scholar 

  • Shen, T. P. (2005). Empirical study on the effect of new basel accord on SMEs, project report commissioned by Joint Credit Information Center, Mimeo.

    Google Scholar 

  • Stein, J. (2002). Information production and capital allocation: Decentralized vs. Hiearchical firms. Journal of Finance, 57(5), 1891–1921.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Management and Law, University of Siena, Siena, Italy

    Pietro Vozzella

  2. Department of Management and Law, University of Siena and SDA Bocconi School of Management, Milan, Italy

    Giampaolo Gabbi

Authors
  1. Pietro Vozzella
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Giampaolo Gabbi
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Pietro Vozzella .

Editor information

Editors and Affiliations

  1. Department of Economics and Business, University of Cagliari, Cagliari, Italy

    Stefania Rossi

Rights and permissions

Reprints and permissions

Copyright information

© 2017 The Author(s)

About this chapter

Cite this chapter

Vozzella, P., Gabbi, G. (2017). SME Credit Access After Basel III. Does Size (and Quality) Matter?. In: Rossi, S. (eds) Access to Bank Credit and SME Financing. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-41363-1_8

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-41363-1_8

  • Published:

  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-41362-4

  • Online ISBN: 978-3-319-41363-1

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation