The macroeconomic implications of the new banking capital regulation in emerging markets: a duopoly model adapted to risk-averse banks

ABSTRACT IN ENGLISH: In order to analyze the impact of the new banking capital regulation (Basel II) on the business cycle in an emerging economy, I develop a duopoly model composed of domestic and foreign banks. Considering the new regulation in this light yields the following results. First, the a...

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Bibliographic Details
Published in:Revista de economia del Rosario 2005-06, Vol.8 (1), p.59-83
Main Author: Nieto Parra, Sebastián
Format: Article
Language:English
Subjects:
Banking
Credit
Economics
Macroeconomics
Market
Portfolio management
Regulation
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Summary:ABSTRACT IN ENGLISH: In order to analyze the impact of the new banking capital regulation (Basel II) on the business cycle in an emerging economy, I develop a duopoly model composed of domestic and foreign banks. Considering the new regulation in this light yields the following results. First, the assessment of credit risk carried out by an international bank in a given country affects the total assets supplied in the countries where this bank has a presence. Second, analysing risk-averse banks, the increase of a foreign bank's portfolio diversification and a tendency to be guided only by `news' can have an excessive influence on the change in loans allocated in a given country as a proportion of the original investment and the total levels of loans for that country. Finally, the macroeconomic implication of a change of credit risk estimation is larger when banks are risk-neutral than risk-averse. // ABSTRACT IN SPANISH: Con el propósito de analizar el impacto de la nueva regulación de capital de bancos (Basilea II) sobre el ciclo de una economía emergente, desarrolló un modelo de duopolio compuesto por bancos locales y extranjeros. Teniendo en cuenta esta nueva regulación, los principales resultados son: la evaluación del riesgo crediticio realizada por un banco internacional en un país, afecta a los activos totales de los países donde este banco está presente. Segundo, analizando los bancos aversos al riesgo, el aumento en la diversificación del portafolio de un banco extranjero y su tendencia a seguir sólo 'noticias', pueden afectar fuertemente el cambio en los préstamos concedidos en un país como proporción de la inversión inicial así como el nivel de los activos totales de ese país. Finalmente, la implicación macroeconómica de un cambio en la estimación del riesgo crediticio aumenta a medida que los bancos son menos aversos al riesgo.
ISSN:0123-5362