The Effects of Higher Bank Capital Requirements on Credit in Peru
Maria Soledad Martinez Peria,
Lev Ratnovski () and
Felix J Vardy
No 18/222, IMF Working Papers from International Monetary Fund
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.
Keywords: Bank credit; Peru; Capital requirements; Western Hemisphere; bank regulation, Financial Markets and the Macroeconomy, Government Policy and Regulation (search for similar items in EconPapers)
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