How the Proposed Basel Guidelines on Rating-Agency Assessments Would Affect Developing Countries
Using historical data on sovereign and individual borrowers, the authors assess the potential impact on non-high-income countries of linking capital asset requirements for banks to private sector ratings, as the Basel committee has proposed. They s...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2000/06/437179/proposd-basel-guidelines-rating-agency-assessments-would-affect-developing-countries http://hdl.handle.net/10986/19835 |
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okr-10986-198352021-04-23T14:03:46Z How the Proposed Basel Guidelines on Rating-Agency Assessments Would Affect Developing Countries Ferri, Giovanni Liu, Li-Gang Majnoni, Giovanni BANK CAPITAL BANK CAPITAL REGULATION BANK DEPOSITS BANK RATINGS BANKING CRISES BANKING CRISIS BANKING SECTOR BANKING SYSTEMS BANKS BENCHMARK BORROWING BORROWING COSTS CAPITAL ADEQUACY CAPITAL FLOWS CAPITAL MARKETS CAPITAL REGULATION CAPITAL REQUIREMENT CAPITAL REQUIREMENTS COST OF CAPITAL CREDIT RATING AGENCIES CREDIT RISK DEBT DEPOSITS DEVELOPMENT ECONOMICS ECONOMETRIC ANALYSIS ECONOMIC GROWTH EMERGING ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS FINANCIAL MARKETS FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL STRENGTH FINANCIAL SYSTEMS FIXED COSTS FOREIGN CURRENCY GDP GLOBALIZATION GUIDELINES INCOME INCOME GROUPS INCOME LEVELS INTERNATIONAL BANKS LESS DEVELOPED COUNTRIES MIDDLE INCOME COUNTRIES RATING AGENCIES SUBSIDIARIES VOLATILITY Using historical data on sovereign and individual borrowers, the authors assess the potential impact on non-high-income countries of linking capital asset requirements for banks to private sector ratings, as the Basel committee has proposed. They show that linking bank's capital asset requirements to external ratings would have undesirable effects for developing countries. First, ratings of banks and corporations in developing countries are less common, so capital asset requirements would be practically insensitive to improvements in the quality of assets-widening the gap between banks of equal financial strength in higher- and lower-income countries. Second, bank and corporate ratings in developing countries (unlike their counterparts in high-income countries) are strongly linked to the sovereign ratings for the country-and appear to be strongly related (asymmetrically) to changes in the sovereign ratings. A sovereign downgrading would bring greater changes in capital allocations than an upgrading, and would call for larger capital requirements at the very time access to capital markets was more difficult. Under the new guidelines, capital requirements in developing countries would thus be exposed to the cyclical swings associated with the revision of sovereign ratings in recent crises. Ultimately, linking banks' capital asset requirements to private sector ratings would reduce the credit available to non-high-income countries and make it more costly, limiting economic activity. Bank capital needs in developing countries would be more volatile than those in high-income countries. These findings suggest that the Basel Committee should assess the role it proposes assigning to external ratings, to minimize the detrimental impact of the regulatory use of such ratings on developing countries. 2014-08-28T18:31:35Z 2014-08-28T18:31:35Z 2000-06 http://documents.worldbank.org/curated/en/2000/06/437179/proposd-basel-guidelines-rating-agency-assessments-would-affect-developing-countries http://hdl.handle.net/10986/19835 English en_US Policy Research Working Paper;No. 2369 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
BANK CAPITAL BANK CAPITAL REGULATION BANK DEPOSITS BANK RATINGS BANKING CRISES BANKING CRISIS BANKING SECTOR BANKING SYSTEMS BANKS BENCHMARK BORROWING BORROWING COSTS CAPITAL ADEQUACY CAPITAL FLOWS CAPITAL MARKETS CAPITAL REGULATION CAPITAL REQUIREMENT CAPITAL REQUIREMENTS COST OF CAPITAL CREDIT RATING AGENCIES CREDIT RISK DEBT DEPOSITS DEVELOPMENT ECONOMICS ECONOMETRIC ANALYSIS ECONOMIC GROWTH EMERGING ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS FINANCIAL MARKETS FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL STRENGTH FINANCIAL SYSTEMS FIXED COSTS FOREIGN CURRENCY GDP GLOBALIZATION GUIDELINES INCOME INCOME GROUPS INCOME LEVELS INTERNATIONAL BANKS LESS DEVELOPED COUNTRIES MIDDLE INCOME COUNTRIES RATING AGENCIES SUBSIDIARIES VOLATILITY |
| spellingShingle |
BANK CAPITAL BANK CAPITAL REGULATION BANK DEPOSITS BANK RATINGS BANKING CRISES BANKING CRISIS BANKING SECTOR BANKING SYSTEMS BANKS BENCHMARK BORROWING BORROWING COSTS CAPITAL ADEQUACY CAPITAL FLOWS CAPITAL MARKETS CAPITAL REGULATION CAPITAL REQUIREMENT CAPITAL REQUIREMENTS COST OF CAPITAL CREDIT RATING AGENCIES CREDIT RISK DEBT DEPOSITS DEVELOPMENT ECONOMICS ECONOMETRIC ANALYSIS ECONOMIC GROWTH EMERGING ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS FINANCIAL MARKETS FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL STRENGTH FINANCIAL SYSTEMS FIXED COSTS FOREIGN CURRENCY GDP GLOBALIZATION GUIDELINES INCOME INCOME GROUPS INCOME LEVELS INTERNATIONAL BANKS LESS DEVELOPED COUNTRIES MIDDLE INCOME COUNTRIES RATING AGENCIES SUBSIDIARIES VOLATILITY Ferri, Giovanni Liu, Li-Gang Majnoni, Giovanni How the Proposed Basel Guidelines on Rating-Agency Assessments Would Affect Developing Countries |
| relation |
Policy Research Working Paper;No. 2369 |
| description |
Using historical data on sovereign and
individual borrowers, the authors assess the potential
impact on non-high-income countries of linking capital asset
requirements for banks to private sector ratings, as the
Basel committee has proposed. They show that linking
bank's capital asset requirements to external ratings
would have undesirable effects for developing countries.
First, ratings of banks and corporations in developing
countries are less common, so capital asset requirements
would be practically insensitive to improvements in the
quality of assets-widening the gap between banks of equal
financial strength in higher- and lower-income countries.
Second, bank and corporate ratings in developing countries
(unlike their counterparts in high-income countries) are
strongly linked to the sovereign ratings for the country-and
appear to be strongly related (asymmetrically) to changes in
the sovereign ratings. A sovereign downgrading would bring
greater changes in capital allocations than an upgrading,
and would call for larger capital requirements at the very
time access to capital markets was more difficult. Under the
new guidelines, capital requirements in developing countries
would thus be exposed to the cyclical swings associated with
the revision of sovereign ratings in recent crises.
Ultimately, linking banks' capital asset requirements
to private sector ratings would reduce the credit available
to non-high-income countries and make it more costly,
limiting economic activity. Bank capital needs in developing
countries would be more volatile than those in high-income
countries. These findings suggest that the Basel Committee
should assess the role it proposes assigning to external
ratings, to minimize the detrimental impact of the
regulatory use of such ratings on developing countries. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Ferri, Giovanni Liu, Li-Gang Majnoni, Giovanni |
| author_facet |
Ferri, Giovanni Liu, Li-Gang Majnoni, Giovanni |
| author_sort |
Ferri, Giovanni |
| title |
How the Proposed Basel Guidelines on Rating-Agency Assessments Would Affect Developing Countries |
| title_short |
How the Proposed Basel Guidelines on Rating-Agency Assessments Would Affect Developing Countries |
| title_full |
How the Proposed Basel Guidelines on Rating-Agency Assessments Would Affect Developing Countries |
| title_fullStr |
How the Proposed Basel Guidelines on Rating-Agency Assessments Would Affect Developing Countries |
| title_full_unstemmed |
How the Proposed Basel Guidelines on Rating-Agency Assessments Would Affect Developing Countries |
| title_sort |
how the proposed basel guidelines on rating-agency assessments would affect developing countries |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2000/06/437179/proposd-basel-guidelines-rating-agency-assessments-would-affect-developing-countries http://hdl.handle.net/10986/19835 |
| _version_ |
1764441529627181056 |