The Effects of Higher Bank Capital Requirements on Credit in Peru

35 Pages Posted: 15 Nov 2018

See all articles by Xiang Fang

Xiang Fang

University of Pennsylvania, School of Arts & Sciences, Department of Economics

David Jutrsa

International Monetary Fund (IMF)

Maria Soledad Martinez Peria

International Monetary Fund (IMF)

Andrea Presbitero

International Monetary Fund (IMF)

Felix Várdy

International Monetary Fund (IMF)

Lev Ratnovski

International Monetary Fund

Date Written: September 2018

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: Bank credit, Peru, Capital requirements, Western Hemisphere, bank regulation, Financial Markets and the Macroeconomy, Government Policy and Regulation

JEL Classification: E44, G21, G28

Suggested Citation

Fang, Xiang and Jutrsa, David and Martinez Peria, Maria Soledad and Presbitero, Andrea and Várdy, Felix and Ratnovski, Lev, The Effects of Higher Bank Capital Requirements on Credit in Peru (September 2018). IMF Working Paper No. 18/222. Available at SSRN: https://ssrn.com/abstract=3285221

Xiang Fang (Contact Author)

University of Pennsylvania, School of Arts & Sciences, Department of Economics ( email )

Suite 150
133 South, 36 Street
Philadelphia, PA 19104
United States

David Jutrsa

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Maria Soledad Martinez Peria

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Andrea Presbitero

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Felix Várdy

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Lev Ratnovski

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
+1 202 623 8213 (Phone)

HOME PAGE: http://ratnovski.googlepages.com

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