Sudip Ghosh

Date of Graduation


Document Type



This dissertation examines the effect of risk-based capital (RBC) requirements were introduced to the U.S. banking industry in the early 1990s and its influence on bank loans. A great deal of work has been spent on issues surrounding the credit crunch. Now the question is whether it is a coincidence of some kind that implementation of RBC requirements and the credit crunch happened around the same time or whether RBC requirements resulted in the credit crunch. Another issue is whether the impact of RBC requirements on U.S. bank lending behavior is permanent or temporary. The research focuses on the theoretical derivation of the impact of RBC requirements and on empirically substantiating those theoretical claims both for aggregate data as well as for panel data. The theoretical model of the loan market is guided by profit maximizing behavior of both loan customers and loan providers where banks are viewed as operating in an imperfectly competitive market. The empirical work consists of measuring the effect of RBC requirements on total loan advancement. OLS regression is run for the aggregate data for the period 1959 to 1996. Additionally, OLS is run on the panel data for the period 1979 to 1996 for all the states in the U.S. and the District of Columbia which comprise my entire panel. The results indicate that, as RBC requirements increased, the lending capacity of U.S. banks decreased both at the national level as well as the state level. These results help to shed some light on the credit crunch issue and suggest that it was supply determined rather than demand determined.