A Discussion of Basel III Capital Regulations within Norwegian Banking Industry
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This study aims to investigate the developments in the Norwegian banking industry in the aftermath of stricter capital requirements and discuss the trends in funding costs, profitability and cost of intermediation within the regulatory framework. The method applied is of descriptive character, where the behavior of different factors is documented through secondary data and interpreted by employment of various research conducted in the field. The investigation of costs shows that the systemically important banks did not lose their position for raising cheaper funds following the more stringent regulations. However, the data indicates that while the overall profitability in Norway was rather stable, the larger banks faced a decrease in the means of returns. Furthermore, it is observed that while the costs were diminishing, the cost of intermediation (i.e. lending spreads) entered an increasing phase, suggesting that banks put effort into boosting the earnings to build regulatory capital buffers through earnings retention. Concerning how the higher margins were reflected in the loans market, potential traces of heterogeneous lending practices and regulatory leakage were detected which bear significance for the outlook in Norway. By this work, it is intended to contribute to the regulatory capital discussions with a broader perspective rather than just focusing on one dimension of the financial system. While the results can lay basis for further empirical research, it is not aimed to test any former research given the methodological scope.
Master's thesis in Finance