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The Effects of Higher Bank Capital Requirements on Credit in Peru

Maria Martinez Peria, Felix Vardy (), Lev Ratnovski (), Andrea Presbitero, David Jutrsa and Xiangming Fang

No 2018/222, IMF Working Papers from International Monetary Fund

Abstract: 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: WP; capital requirement; capital buffer; buffer requirement; credit growth; bank credit; bank regulation; capital requirements; capital financing; requirement increase; conservation plan; loan growth; capital reform; Credit; Loans; Countercyclical capital buffers; Capital adequacy requirements; Europe; Global (search for similar items in EconPapers)
Pages: 34
Date: 2018-09-28
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Handle: RePEc:imf:imfwpa:2018/222