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Basel Capital Requirements and Bank Credit Risk Taking In Developing Countries

Author

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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.

Suggested Citation

  • Hussain, M. Ershad & Hassan, M. Kabir, 2005. "Basel Capital Requirements and Bank Credit Risk Taking In Developing Countries," Working Papers 2005-01, University of New Orleans, Department of Economics and Finance.
  • Handle: RePEc:uno:wpaper:2005-01
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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.
    2. repec:eee:revfin:v:34:y:2017:i:c:p:1-9 is not listed on IDEAS
    3. Basher, Syed Abul & Kessler, Lawrence M. & Munkin, Murat K., 2017. "Bank capital and portfolio risk among Islamic banks," Review of Financial Economics, Elsevier, vol. 34(C), pages 1-9.

    More about this item

    Keywords

    Capital requirement; Commercial banks; Credit risk;

    JEL classification:

    • 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
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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