Maria Concetta Chiuri () (Dipartimento di Scienze Economiche - Università di Bari) Giovanni Ferri (Dipartimento di Scienze Economiche - Università di Bari) Giovanni Majnoni (World Bank)
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We test for emerging economies the hypothesis - previously verified for G-10 countries only - that the enforcement of bank capital asset requirements (CARs) exerts a detrimental effect on the supply of credit. The econometric analysis on individual bank data suggests three main results. First, CAR enforcement - according to the 1988 Basel standard - significantly curtailed credit supply, particularly at less-well capitalized banks. Second, such negative impact was larger for countries enforcing CARs in the aftermath of a currency/financial crisis. Third, the adverse impact of CARs on the credit supply was significantly 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, CAR enforcement - by inducing banks to reduce their lending - may well have induced an aggregate credit slowdown or contraction in the examined emerging countries. This paper is relevant to the ongoing debate on the impact of the revision of bank CARs, as contemplated by the 1999 Basel proposal. Our results suggest that in several emerging economies the revision of bank CARs could well induce a credit supply retrenchment, which should not be underestimated.
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Paper provided by Dipartimento di Scienze Economiche - Università di Bari in its series series with number
0002.
Length: 31 Date of creation: Date of revision: Handle: RePEc:bai:series:wp0002
Note: We wish to thank Hosook Hwang for valuable research assistance. Helpful comments were provided by Jerry Caprio, Patrick Honohan and Vasso Ioannidou. In addition, we are grateful to the IMF for having granted us permission to access the archive of the Article IV Consultation documents. The authors are exclusively responsible for the contents of the paper, which should not be attributed in any manner to the World Bank or to members of its Board of Executive Directors or the countries they represent. Contact details of provider: Postal: Via Camillo Rosalba, 53 - 70124 - Bari ITALY Phone: +390805049042 Fax: +390805049149 Web page: http://www.dse.uniba.it More information through EDIRC
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Anil K. Kashyap & Jeremy C. Stein, 1994.
"Monetary Policy and Bank Lending,"
NBER Chapters,
in: Monetary Policy, pages 221-261
National Bureau of Economic Research, Inc.
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