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dc.contributor.authorBrester, Gary W.
dc.contributor.authorWatts, Myles J.
dc.date.accessioned2019-04-10T19:58:23Z
dc.date.available2019-04-10T19:58:23Z
dc.date.issued2018-05
dc.identifier.citationBrester, Gary W. , and Myles J. Watts. "The Basel accords, capital reserves, and agricultural lending." Agricultural Finance Review 79, no. 1 (May 2018): 27-47. DOI:10.1108/AFR-04-2017-0025.en_US
dc.identifier.issn0002-1466
dc.identifier.urihttps://scholarworks.montana.edu/xmlui/handle/1/15422
dc.description.abstractPurpose The safety and soundness of financial institutions has become a leading worldwide issue because of the recent global financial crisis. Historically, financial crises have occurred approximately every 20 years. The worst financial crisis in the last 75 years occurred in 2008–2009. US regulatory efforts with respect to capital reserve requirements are likely to have several unintended consequences for the agricultural lending sector—especially for smaller, less-diversified (and often, rural agricultural) lenders. The paper discusses these issues. Design/methodology/approach Simulation models and value-at-risk (VaR) criteria are used to evaluate the impact of capital reserve requirements on lending return on equity. In addition, simulations are used to calculate the effects of loan numbers and portfolio diversification on capital reserve requirements. Findings This paper illustrates that increasing capital reserve requirements reduces lending return on equity. Furthermore, increases in the number of loans and portfolio diversification reduce capital reserve requirements. Research limitations/implications The simulation methods are a simplification of complex lending practices and VaR calculations. Lenders use these and other procedures for managing capital reserves than those modeled in this paper. Practical implications Smaller lending institutions will be pressured to increase loan sector diversification. In addition, traditional agricultural lenders will likely be under increased pressure to diversify portfolios. Because agricultural loan losses have relatively low correlations with other sectors, traditional agricultural lenders can expect increased competition for agricultural loans from non-traditional agricultural lenders. Originality/value This paper is novel in that the authors illustrate how lender capital requirements change in response to loan payment correlations both within and across lending sectors.en_US
dc.language.isoenen_US
dc.rightsThis Item is protected by copyright and/or related rights. You are free to use this Item in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s).en_US
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/en_US
dc.titleThe Basel accords, capital reserves, and agricultural lendingen_US
dc.typeArticleen_US
mus.citation.extentfirstpage27en_US
mus.citation.extentlastpage47en_US
mus.citation.issue1en_US
mus.citation.journaltitleAgricultural Finance Reviewen_US
mus.citation.volume79en_US
mus.identifier.categoryBusiness, Economics & Managementen_US
mus.identifier.doi10.1108/AFR-04-2017-0025en_US
mus.relation.collegeCollege of Agricultureen_US
mus.relation.departmentAgricultural Economics & Economics.en_US
mus.relation.universityMontana State University - Bozemanen_US
mus.data.thumbpage11en_US


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