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Did the Basel Accord Cause a Credit Slowdown in Latin America?

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  • Adolfo Barajas

    ()

  • Ralph Chami

    ()

  • Thomas Cosimano

Abstract

Drawing from a unique data set comprising 2,893 banks and 152 countries over the period 1987 to 2000, we test whether the adoption of the Basel Accord by Latin American and Caribbean countries was responsible for the serious slowdowns in credit growth experienced by these countries. We find that, on average, both bank capitalization and lending activities in Latin America increased after Basel. Consequently, Basel did not seem to lead to an overall credit decline. However, we do find evidence that loan growth became more sensitive to some risk factors. Our study suggests that the upcoming adoption of Basel II might cause greater procyclicality of credit.

Suggested Citation

  • Adolfo Barajas & Ralph Chami & Thomas Cosimano, 2004. "Did the Basel Accord Cause a Credit Slowdown in Latin America?," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2004), pages 135-182, August.
  • Handle: RePEc:col:000425:008668
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    1. repec:wsi:medjxx:v:05:y:2013:i:02:n:s1793812013500144 is not listed on IDEAS
    2. Torsten Wezel & Mario Mansilla & Gustavo Adler, 2009. "Modernizing Bank Regulation in Support of Financial Deepening; The Case of Uruguay," IMF Working Papers 09/199, International Monetary Fund.
    3. Chami, Ralph & Cosimano, Thomas F., 2010. "Monetary policy with a touch of Basel," Journal of Economics and Business, Elsevier, vol. 62(3), pages 161-175, May.
    4. Stephen G. Cecchetti & Lianfa Li, 2008. "Do Capital Adequacy Requirements Matter For Monetary Policy?," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 643-659, October.
    5. Burton A. Abrams & Russell F. Settle, 2007. "Do Fixed Exchange Rates Fetter Monetary Policy? A Credit View," Eastern Economic Journal, Eastern Economic Association, vol. 33(2), pages 193-205, Spring.
    6. Yang Li & Yi-Kai Chen & Feng Sheng Chien & Wen Chih Lee & Yi Ching Hsu, 2016. "Study of optimal capital adequacy ratios," Journal of Productivity Analysis, Springer, vol. 45(3), pages 261-274, June.
    7. Cathcart, Lara & El-Jahel, Lina & Jabbour, Ravel, 2015. "Can regulators allow banks to set their own capital ratios?," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 112-123.
    8. Barroso, Ricardo Vieira & Lima, Joaquim Ignacio Alves Vasconcellos & Lucchetti, Alexandre Henrique & Cajueiro, Daniel Oliveira, 2016. "Interbank network and regulation policies: an analysis through agent-based simulations with adaptive learning," MPRA Paper 73308, University Library of Munich, Germany.
    9. Song, Joonhyuk & Ryu, Doojin, 2016. "Credit cycle and balancing the capital gap: Evidence from Korea," Economic Systems, Elsevier, vol. 40(4), pages 595-611.
    10. Ghosh, Saibal, 2010. "Credit Growth, Bank Soundness and Financial Fragility: Evidence from Indian Banking Sector," MPRA Paper 24715, University Library of Munich, Germany.
    11. Alicia García-Herrero & Sergio Gavilá, 2006. "Posible impacto de Basilea II en los países emergentes," Boletín, Centro de Estudios Monetarios Latinoamericanos, vol. 0(3), pages 103-124, Julio-sep.
    12. Birgit Schmitz, 2007. "The impact of Basel I capital regulation on bank deposits and loans: Empirical evidence for Europe," Money Macro and Finance (MMF) Research Group Conference 2006 42, Money Macro and Finance Research Group.
    13. repec:pal:jbkreg:v:18:y:2017:i:4:d:10.1057_s41261-016-0003-2 is not listed on IDEAS
    14. Carvallo, Oscar & Kasman, Adnan & Kontbay-Busun, Sine, 2015. "The Latin American bank capital buffers and business cycle: Are they pro-cyclical?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 148-160.
    15. repec:arp:ijefrr:2018:p:99-106 is not listed on IDEAS

    More about this item

    Keywords

    Capital Requirements; Basel Accord; Capital Channel;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services

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