The Effect of the Basel Accord on Bank Lending in Japan

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  • 1 January 2001
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      • Published in RePEc
Abstract
This study investigates the hypothesis that stricter capital adequacy requirements introduced under the 1988 Basel Accord caused Japanese banks to restrict loan growth. Using a panel of Japanese bank balance sheets for fiscal years 1982-1999, this study finds that the 1988 Basel Accord regulation requiring international banks to hold a BIS (Bank for International Settlements) capital to risk-weighted asset ratio of at least 8% increased the sensitivity of total loan growth to capitalization for international banks in Japan. A similar, but quantitatively smaller, finding is reported for a group of "switcher" banks that initially pursued the 8% BIS capital adequacy requirement following the signing of the Basel Accord in 1988, but then later switched to pursue a domestic 4% MOF (Ministry of Finance) capital adequacy requirement. Domestic banks, which were subject to the 4% MOF capital adequacy requirement for the entire post-Basel period, show no evidence of increased sensitivity of lending to capitalization in the post-Basel period.
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