The impact of Basel II Adoption on the Financing of European Real Estate Companies
||Porumb, Vlad Andrei; Ion Anghel
||The impact of Basel II Adoption on the Financing of European Real Estate Companies
||21st Annual European Real Estate Society Conference in Bucharest, Romania
||In this paper we analyze the impact of the Basel II adoption on the ability of European real estate companies to access bank loans. The Basel Committee on Banking Supervision (BSBS) adjusted their regulatory recommendations to answer the potentially problematic concentration of loans in the real estate industry. Relative to the former Basel I Capital Accord, the new banking regulation introduces a more detailed categorization of real estate lending categories, with more sensitive credit risk weights. In all classes of Basel II application, Standardized, IRB and A-IRB, credit risk exposure significantly evolved relative to Basel Iís dichotomous residential mortgage/commercial real estate loans categorization. The more sophisticated and risk-sensitive classification is likely to have influenced the borrowing capacity of real estate companies in the post-Basel II adoption period. We focus on the enlarged EU countries because the adoption of Basel II was mandated in 2008 for all listed firms. This homogeneous setting allows us to better assess the impact of the new banking regulation on the lending of real estate companies. To our knowledge we are the first to document the impact of a change in banking regulation on the lending in the real estate industry.
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||O: Real Estate Finance & Investment
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