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Implications of Basel II for Latin America

  • Andrew Powell

Despite delays, Basel II remains set to be finalized this year with implementation in Basel Committee countries by the end of 2006. How will this agreement between a set of G10+ countries affect emerging economies? Two implications are considered here for countries in Latin America. First, earlier papers have suggested that implementation in G10+ may affect the cost of capital and may introduce pro-cyclicality. The analysis presented indicates that these concerns may be exaggerated depending on the value of critical parameters. Second, Latin America may choose to implement the new agreement locally. Five country characteristics are detailed that might serve as a guide to govern whether and if so how Basel II should be implemented. Moreover, a simpler Centralized Rating Based (CRB) approach to enhance provisioning is proposed as an initial or transition step for the region. Finally, a number of largely unresolved, cross-border issues are discussed.

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Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number basel.

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Length: 25 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:udt:wpbsdt:basel
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  1. Hu, Yen-Ting & Kiesel, Rudiger & Perraudin, William, 2002. "The estimation of transition matrices for sovereign credit ratings," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1383-1406, July.
  2. Powell, Andrew, 2004. "Basel II and developing countries : Sailing through the sea of standards," Policy Research Working Paper Series 3387, The World Bank.
  3. Repullo, Rafael & Suarez, Javier, 2003. "Loan Pricing Under Basel Capital Requirements," CEPR Discussion Papers 3917, C.E.P.R. Discussion Papers.
  4. Jackson, Patricia & Perraudin, William, 2000. "Regulatory implications of credit risk modelling," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 1-14, January.
  5. Beatrice Weder & Michael Wedow, 2002. "Will Basel II Affect International Capital Flows to Emerging Markets?," OECD Development Centre Working Papers 199, OECD Publishing.
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