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Working Paper 139 - The Macroeconomic Impact of Higher Capital Ratios on African Economies

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Motivated by the recent debate on the macroeconomic implications of the new bank regulatory standards known as Basel III, this paper examines the impact of higher capital ratios on aggregate output in a comprehensive panel of African economies. We quantify benefits stemming from lower probability of banking crises due to more stringent capital holdings using a multivariate logit model. Costs, measured as the impact of higher lending rates premia over deposit rates due to higher capital levels on aggregate output, are quantified using panel data models with fixed effects. We find that there are net benefits associated with tightened capital ratios, and conclude that, by strengthening the resilience of its banking systems, the new global standards might lead to long-term welfare gains for African economies..

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  • Giovanni Caggiano & Pietro Calice, 2011. "Working Paper 139 - The Macroeconomic Impact of Higher Capital Ratios on African Economies," Working Paper Series 359, African Development Bank.
    • Handle: RePEc:adb:adbwps:359
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    Cited by:

    1. Christopher Loewald & David Faulkner & Konstantin Makrelov, 2020. "Time consistency and economic growth a case study of south african macroeconomic policy," Working Papers 10421, South African Reserve Bank.
    2. Adesina, Kolade Sunday, 2019. "Basel III liquidity rules: The implications for bank lending growth in Africa," Economic Systems, Elsevier, vol. 43(2), pages 1-1.
    3. Gudmundsson, Ragnar & Ngoka-Kisinguh, Kethi & Odongo, Maureen, 2013. "The role of capital requirements on bank competition and stability: The case of the Kenyan banking industry," KBA Centre for Research on Financial Markets and Policy Working Paper Series 5, Kenya Bankers Association (KBA).
    4. Konstantin Makrelov & Rob Davies & Laurence Harris, 2021. "The impact of higher leverage ratios on the South African economy," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 45(3), pages 184-207, July.

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