Does Going Tough on Banks Make the Going Get Tough? Bank Liquidity Regulations, Capital Requirements, and Sectoral Activity

June 19, 2020

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Format: Chicago

Deniz O Igan, and Ali Mirzaei. Does Going Tough on Banks Make the Going Get Tough? Bank Liquidity Regulations, Capital Requirements, and Sectoral Activity, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Whether and to what extent tougher bank regulation weighs on economic growth is an open empirical question. Using data from 28 manufacturing industries in 50 countries, we explore the extent to which cross-country differences in bank liquidity and capital levels were related to differences in sectoral activity around the period of the global financial crisis. We find that industries which are more dependent on external finance, in countries where banks had higher liquidity and capital ratios, performed relatively better during the crisis, with regard to investment rates and the creation of new enterprises. This relationship, however, exists only for bank-based systems and emerging market economies. In the pre-crisis period, we find only a marginal link to bank capital. These findings survive a battery of robustness checks and provide some solid support for the tighter prudential measures introduced under Basel III.

Subject: Asset and liability management, Banking, Basel III, Capital adequacy requirements, Financial crises, Financial regulation and supervision, Liquidity, Liquidity requirements

Keywords: Bank capital, Bank liquidity, Basel III, Capital adequacy requirements, Capital level, Capital position, Capital requirement, Capital standard, Economic activity, External finance dependence, Financial stability, Global, Investment rate, Liquidity, Liquidity level, Liquidity requirements, Net income, Return on equity, Sectoral activity, WP

Publication Details

Pages:

64
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/103
Stock No:

WPIEA2020103
ISBN:

9781513548104
ISSN:

1018-5941

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