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Basel Capital Requirements and Bank Credit Risk Taking In Developing Countries

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  • Hussain, M. Ershad

    (University of New Orleans)

  • Hassan, M. Kabir

    (University of New Orleans
    Drexel University)

Abstract

Existing literature has focused attention on the impact of Basle I and similar capital requirement regulations on developed countries where such regulations were found to be effective in increasing capital ratios and reducing portfolio credit risk of commercial banks. In the present study, we study the impact of such capital requirement regulations on commercial banks in 11 developing countries around the world within a cross-section framework with the widely popular simultaneous equations model of Shrieves and Dahl (1992). Surprisingly, we find that such regulations did not increase the capital ratios of banks in the developing countries. This implies that particular attention should be given to the business, environmental, legal, cultural realities of such countries while designing and implementing such policies for developing countries. However, we find evidence that such regulations did reduce portfolio risk of banks. We also find that capital ratios and portfolio risk are inversel.

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Bibliographic Info

Paper provided by University of New Orleans, Department of Economics and Finance in its series Working Papers with number 2005-01.

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Length: 40 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:uno:wpaper:2005-01

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Related research

Keywords: Capital requirement; Commercial banks; Credit risk;

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Cited by:
  1. Saadaoui, Zied, 2008. "Capital standards and banking stability in emerging countries: an empirical approach," MPRA Paper 25464, University Library of Munich, Germany.

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