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Risk-Based Capital Requirements for Banks and International Trade

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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.
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hal-02018542 , version 1 (13-02-2019)

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  • HAL Id : hal-02018542 , version 1

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Banu Demir, Tomasz Kamil Michalski, Evren Ors. Risk-Based Capital Requirements for Banks and International Trade. 2014. ⟨hal-02018542⟩

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