Capital requirements, banking supervision and lending behavior: evidence from Tunisia

Abstract

This paper represents a contribution to the still meager literature on the impact of prudential regulation bank behavior in Tunisia. It aims to examine the effect of the capital requirements on bank credits during the period from 1999 through 2010 and to assess the effectiveness of the banking supervision policy in containing banking system's risk. For this purpose a dynamic model is built and then an empirical regression is estimated. The results shows that regulatory capital framework has been binding bank lending in Tunisia during the period of study; well-capitalized banks have lent more than less-capitalized ones. Despite the apparent stringency of the bank regulator in Tunisia, banking supervision has been weakly effective in restraining banks' overall risk. Further strengthening of the banking supervision policy is still needed on the part of the central bank of Tunisia; i.e., the bank regulator.

What influences bank lending in Saudi Arabia?

“…One strand of literature studies the issue in the context of monetary policy transmission or the bank lending channel, which has attracted particular attention after the global financial crisis. These studies find that bank-specific characteristics, such as size, liquidity, capitalization and lenders' default probabilities, have a large impact on the provision of credit (for instance, Altunbasa et al (2010); Gambacorta and Marques-Ibanez (2011); Guizani (2015); Gambacorta and Shin (2016)). For emerging markets, global factors increased in importance in affecting the bank lending channel as capital flows became larger and more volatile against the backdrop of very easy global monetary conditions (Kohlscheen and Miyajima (2015)).…”