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