Capital requirements and credit policies in Italy. What effects do they have?

Lending policies of European banks have been affected both by the effects of Basel 2 and by the economic crisis. Faced with the danger of a fall in solvency and its repercussions, authorities and policy makers have been calling for higher capital requirements. This, however, may have the effect of further reducing access to credit and trigger a vicious circle that will be difficult to determine. This study examined the role of the “EBA effect” on credits given by Italian banks, subject to additional capitalization. The research involved an analysis of data regarding the years 2007-12 and an observation of the Italian banking system with a particular focus on lending dynamics. The study has shown that there has been a decrease in lending since 2008 accompanied by financial selection and a substantial ‘independence’ of credit trends from the recommendations of the Authority.