Risk-based capital requirements for banks and international trade

Date
2017
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Source Title
Review of Financial Studies
Print ISSN
0893-9454
Electronic ISSN
1465-7368
Publisher
Oxford University Press
Volume
30
Issue
11
Pages
3971 - 4002
Language
English
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Abstract

We test the trade finance channel of exports by controlling for the bank credit channel. Using Turkey’s July 2012 adoption of Basel II as a quasi-natural experiment, we examine whether shocks to trade financing costs affect exports. With data for 16,662 Turkish exporters shipping 2,888 different products to 158 countries, we find that the share of letters-of-credit-based exports decreases (increases) when the associated risk weights for counterparty exposure increase (decrease) after the adoption of Basel II. However, growth of firm-product-country-level exports remains unaffected. Trade financing might have a lesser role in exports than previously suggested by the previous literature. © The Author 2017. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.

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