The Macroeconomic Impact of Bank Capital Requirements in Emerging Economies : Past Evidence to Assess the Future
The authors test for emerging economies, the hypothesis - previously verified only for the Group of 10 (G-10) countries - that enforcing bank capital asset requirements, exerts a negative effect on the supply of credit. Their econometric analysis o...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/01/1346356/macroeconomic-impact-bank-capital-requirements-emerging-economies-past-evidence-assess-future http://hdl.handle.net/10986/19716 |
| Summary: | The authors test for emerging economies,
the hypothesis - previously verified only for the Group of
10 (G-10) countries - that enforcing bank capital asset
requirements, exerts a negative effect on the supply of
credit. Their econometric analysis of data on individual
banks, suggests three main results: 1) Enforcement of
capital asset requirements - according to the 1998 Basel
standard - significantly curtailed credit supply,
particularly at less-well-capitalized banks. 2) This
negative effect is not limited to countries enforcing
capital asset requirements in the aftermath of a currency,
or financial crises. 3) The adverse impact of capital
requirements on the credit supply was somewhat smaller for
foreign-owned banks, suggesting that opening up to foreign
investors, may be an effective way to partly shield the
domestic banking sector from negative shocks. Overall, by
inducing banks to reduce their lending, enforcement of
capital asset requirements may well have induced an
aggregate slowdown, or contraction in credit in the emerging
economies examined. The results have relevance for the
ongoing debate on the impact of the revision of bank capital
asset requirements, contemplated by the 1999 Basel proposal.
They suggest that in several emerging economies, the phasing
in of higher capital requirements needs to be carefully
managed, to avoid a credit supply retrenchment, which should
not be underestimated. |
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