Risk-Based Capital Requirements for Banks and International Trade

57 Pages Posted: 10 Oct 2016

See all articles by Tomasz Kamil Michalski

Tomasz Kamil Michalski

HEC Paris - Economics & Decision Sciences

Evren Ors

HEC Paris - Finance Department

Banu Demir

Bilkent University; Centre for Economic Policy Research (CEPR)

Date Written: October 2016

Abstract

We find that changes in banks' risk-based capital requirements can affect firm-level exports. We exploit the mandatory Basel II adoption in its Standardized Approach by all banks in Turkey on July 1, 2012. This change affects risk-weights for letters of credit and generates two identification schemes with opposite predicted signs. Using data that cover 16,662 exporters shipping 2,888 different products to 158 countries, we find that the share of letter of credit-based exports decreases (increases) at the firm- country-product level when the associated counterparty risk-weights increase (decrease) after Basel II adoption. However, growth of firm-product-country level exports remains unaffected.

Keywords: Basel II, international trade finance, letters of credit

JEL Classification: F14, G21, G28

Suggested Citation

Michalski, Tomasz K. and Ors, Evren and Demir, Banu, Risk-Based Capital Requirements for Banks and International Trade (October 2016). CEPR Discussion Paper No. DP11565, Available at SSRN: https://ssrn.com/abstract=2850407

Tomasz K. Michalski (Contact Author)

HEC Paris - Economics & Decision Sciences ( email )

Paris
France

Evren Ors

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
+33 1 3967 7123 (Phone)
+33 1 3967 7085 (Fax)

HOME PAGE: http://https://people.hec.edu/ors/

Banu Demir

Bilkent University ( email )

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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