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Title: Did Basel II reduce lending in emerging markets?
Authors: Eriksson, Johanna
Advisors: Krugman, Paul
Department: Woodrow Wilson School
Class Year: 2014
Abstract: This thesis shows that implementing Basel II capital adequacy requirements in emerging markets did not lead banks to reduce lending. This contrasts with banks in high-income countries, which respond to a tightening of capital adequacy requirements by curtailing credit. The difference can likely be attributed to variations in capitalization levels: banks in emerging markets are well-capitalized and need not adjust their behavior when capital adequacy requirements are increased. Contrarily, banks in high-income countries maintain low capital adequacy ratios and are forced to reduce lending in the face of more stringent requirements. These results were obtained using a dataset comprising individual data for 899 banks in 97 countries over the period 2005 to 2012. The findings remove a major argument against continuing to roll out Basel II across emerging markets: that doing so would reduce lending and consequently hamper economic growth. This does not seem to be the case.
Extent: 60 pages
Type of Material: Princeton University Senior Theses
Language: en_US
Appears in Collections:Woodrow Wilson School, 1929-2016

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