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Risk-Based Capital Requirements for Banks and International Trade

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  • Michalski, Tomasz
  • Örs, Evren
  • Pakel, Banu Demir

Abstract

We find that changes in banks' risk-based capital requirements can affect firm-level exports. We exploit the mandatory Basel II adoption in its Standardized Approach by all banks in Turkey on July 1, 2012. This change affects risk-weights for letters of credit and generates two identification schemes with opposite predicted signs. Using data that cover 16,662 exporters shipping 2,888 different products to 158 countries, we find that the share of letter of credit-based exports decreases (increases) at the firm- country-product level when the associated counterparty risk-weights increase (decrease) after Basel II adoption. However, growth of firm-product-country level exports remains unaffected.

Suggested Citation

  • Michalski, Tomasz & Örs, Evren & Pakel, Banu Demir, 2016. "Risk-Based Capital Requirements for Banks and International Trade," CEPR Discussion Papers 11565, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11565
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    More about this item

    Keywords

    Basel II; international trade finance; letters of credit;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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