The Effects of Higher Bank Capital Requirements on Credit in Peru
Author | : Xiang Fang |
Publisher | : International Monetary Fund |
Total Pages | : 34 |
Release | : 2018-10-01 |
ISBN-10 | : 9781484378830 |
ISBN-13 | : 1484378830 |
Rating | : 4/5 (30 Downloads) |
Book excerpt: This paper offers novel evidence on the impact of raising bank capital requirements in the context of an emerging market: Peru. Using quarterly bank-level data and exploiting the adoption of bank-specific capital buffers, we find that higher capital requirements have a short-lived, negative impact on bank credit in Peru, although this effect becomes statistically insignificant in about half a year. This finding is robust to estimating different specifications to address concerns about the exogeneity of capital requirements. The fact that the reform was gradual and pre-announced and that banks were highly profitable at the time could explain the short-lived effects on credit.