Base III and bank lending channel: evidence in BRICS nad OECD countries

Abstract

Basel committee on banking supervision (BCBS) promulgated Basel III regulations with more tightened operating conditions in the banking sector. This improvement of BCBS has brought about a lot of arguments. Some researchers suppose that Basel III regulations raise the marginal cost and reduce bank lending, but others believe Basel III regulations can improve the banking system and increase the financial shocks absorbability. To investigate the impact of Basel III on bank lending channel, this study utilizes data collected from 391 commercial banks in 10 countries (BRICS and 5 countries of OECD) from 2011-2016. The empirical results from three stages least square under generalized structural equation model (GSEM) show that there is the disparity impact of Basel III regulations on bank lending channel between BRICS and 5 countries of OECD. Specifically, there is the significant negative impact of Basel III liquidity regulations and time dummy variable but no significant capital regulation effects on bank lending channel in BRICS countries. The possible reason is that capital ratios (Tier 1 ratio, Common equity tier 1 ratio, and leverage ratio) of commercial banks in BRICS were higher than Basel III regulations in the period 2011-2016. They have not had too much pressure on adapting capital requirements of Basel III regulations. In contrast, in the 5 countries of OECD, there are no evidence to prove time dummy variable and the liquidity regulations effect on bank lending channel, nevertheless, the capital requirements of Basel III have a significant negative impact on bank lending channel.