Ebook The Impact Of Capital Requirements In Brazilian Banks Loan Supply
Crises in the financial system of a country implicate great damages to the society, given its role as credit provider to other segments of the economy and its ability to create money. In addition, the dispersion and low level of information of a major part of its creditors the depositors leave them practically unable to monitor their debtors. Such peculiarities would provide enough support to justify the existence of a specific framework for regulating and monitoring the financial sector.
Nevertheless, it must be reminded that creating a stable financial system implies costs, which may be direct ones the expenses of the regulatory authority, for instance or indirect ones, as distortions that arise, for example, from the inefficiency induced by regulatory models that rely on assumptions other than banks profit maximization (COSTA, 1999).
Considering that kind of distortion, several papers have had as scope the effect of regulatory instruments in banking decisions. Among such instruments, capital requirements are highlighted, for being the most proliferated banking regulatory model on an international basis.
Studies that evaluate its impacts on banking behavior in a theoretical perspective may be classified into three main frameworks: one that views a bank as a portfolio manager (consolidated in Kim and Santomero, 1988), a second one that regards the incentive for risk taking under asymmetric information (such as in Giammarino et al., 1993), and a last one which deals with incomplete contracts among depositors, managers and stockholders of a bank (Dewatripont and Tirole, 1994, p. 133).
Despite being their approaches very different, all those formulations converge on their conclusions: they all admit capital requirements efficiently elaborated in order to reduce agency problems and excessive investment in risky assets. However, they are based upon too general hypothesis and propose optimal regulatory frameworks that many authors consider infeasible (FREIXAS; SANTOMERO, 2004).
Notwithstanding, the analysis of a bank as a portfolio manager has backed the elaboration, in 1988, of the Basel Accord (BASEL COMMITTEE ON BANKING SUPERVISION, 1988), international milestone in the definition of capital requirements, which establishes that banks must hold capital levels that should be compatible with the risk of their assets. From then on, more pecific studies were elaborated, foregrounding the search of empirical evidence of the impact of the new regulation on the allocation of banking assets.
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