Capital requirements and credit policies in Italy: what effects do they have?

The 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 break. This study examines the role of the 'EBA effect' on credits given by Italian banks, subject to additional capitalisation. The research involved analysis of data for 2007‐2012 and observation of the Italian banking system, with a particular focus on lending dynamics. The study shows that there has been a decrease in lending since 2008, accompanied by financial selection and substantial 'independence' of credit trends from the recommendations of the authority.