Prudential green supporting factors and brown penalizing factors affect loan pricing only through the capital constraint that is active at the margin. Under Basel III, effective risk-weighted assets are the greater of internal-model estimates and the output-floor share of standardized totals. Standardized multipliers, therefore, affect marginal pricing directly only when the floor leg binds or when a policy change moves the bank across the floor threshold. Otherwise, pricing is governed by internal-model risk weights, supervisory conservatism, and borrower-level risk parameters. The framework allows the shadow value of capital to vary with management buffers and separates the direct multiplier effect from amplification through capital scarcity. Illustrative calibrations imply small rate wedges under moderate assumed shadow costs of capital, with larger effects only near the floor kink, under strong multipliers, or when capital is scarce.
Endre J. Reite (Sun,) studied this question.