Working Paper 139 - The Macroeconomic Impact of Higher Capital Ratios on African Economies
AbstractMotivated 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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Bibliographic InfoPaper provided by African Development Bank in its series Working Paper Series with number 359.
Date of creation: 28 Nov 2011
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