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Risk-Based Capital Requirements for Banks and International Trade

Banu Demir (), Tomasz Michalski () and Evren Ors ()
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Evren Ors: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

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Abstract: We provide the first evidence that changes in risk-based capital requirements for banks affect the real economy through international trade. Using a natural experiment – mandatory Basel II adoption in its Standardized Approach by all banks in Turkey on July 1, 2012 – we investigate the impact of new risk-weights applied to commercial letters of credit (CLC) on that country's exports to 174 countries. We estimate the resulting payment-term-cost elasticity of CLC-financed trade to be between -0.5 and -1 while the overall trade elasticity to be between -0.032 and -0.179. Calculations suggest that both CLC-related bank pricing and rationing channels are involved.

Keywords: commercial letters of credit; international trade finance; exports; risk-weights; Basel II (search for similar items in EconPapers)
Date: 2014-10-29
Note: View the original document on HAL open archive server: https://hal-hec.archives-ouvertes.fr/hal-02018542
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Related works:
Journal Article: Risk-Based Capital Requirements for Banks and International Trade (2017) Downloads
Working Paper: Risk-Based Capital Requirements for Banks and International Trade (2016) Downloads
Working Paper: Risk-Based Capital Requirements for Banks and International Trade (2014) Downloads
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