Working Paper: CEPR ID: DP5163
Authors: Thilo Liebig; Daniel Porath; Beatrice Weder; Michael Wedow
Abstract: This paper investigates whether the new Basel Accord will induce a change in bank lending to emerging markets using a new loan level data set on German banks' foreign exposure. We test two interlinked hypotheses on the conditions under which the change in the regulatory capital would leave lending flows unaffected. This would be the case if (i) the new regulatory capital requirement remains below the economic capital, and (ii) banks' economic capital to emerging markets already adequately reflects risk. On both accounts the evidence indicates that the new Basel Accord should have a limited effect on lending to emerging markets.
Keywords: banking regulation; Basel Accord; international lending
JEL Codes: F33; F34; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Basel II implementation (G28) | Lending decisions of German banks to emerging markets (F65) |
| Regulatory capital under Basel II (G28) | Lending decisions (G21) |
| Economic capital (E22) | Lending decisions (G21) |
| Unexpected loss considerations (G33) | Lending decisions (G21) |
| Economic capital constraints (D24) | Lending decisions (G21) |