 The Macroeconomic Implications of Regulatory Capital Adequacy Requirements for Korean BanksG. Choi Economic Notes, 2000, vol. 29, issue 1, 111-143 Abstract: type="main" xml:lang="en"> The capital adequacy requirement, combined with the flight to quality, contributed to a drastic credit slowdown and a sharp recession in Korea in the aftermath of the financial crisis. Since most banks were placed under the strengthened capital adequacy constraints, they reduced loans to firms with high credit risks. As a result, bank-dependent small and medium-sized enterprises (SMEs) were badly hit, and eventually demand for bank loans fell. The reduction in loans was most visible among banks with poor capital adequacy, yet the overall change in bank portfolios had a disproportionately large negative influence on financial conditions for SMEs. In conclusion, the banks' response to capital adequacy requirements resulted in changes in the loan/bond ratio which, in turn, reduced loans to SMEs and caused a sharp cut in production. The resulting contraction in SME production created a polarized industrial structure and a chronic depression in the traditional sectors of the economy. The introduction of capital adequacy requirements (CARs) in the wake of financial crisis worsened conditions for SMEs and weakened the validity of the CARs that were mainly necessitated by successive failures among larger firms. Date: 2000 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:ecnote:v:29:y:2000:i:1:p:111-143 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in Economic Notes from Banca Monte dei Paschi di Siena SpA |
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