Should National Development Banks be Subject to Basel III?

Ricardo Gottschalk, Lavinia B. Castro, Jiajun Xu

 

Ricardo Gottschalk, United Nations, Office of the Resident Coordinator, Pretoria, South Africa;

Lavinia B. Castro, The Brazilian Development Bank, Rio de Janeiro, Brazil;

Jiajun Xu (Corresponding author, jiajunxu@nsd.pku.edu.cn), Institute of New Structural Economics at Peking University, Beijing, P.R. China. 

 

ABSTRACT

We address the question: What are the potential impacts of Basel III capital framework for National Development Banks (NDBs) upon their ability to fulfil their developmental mandate? We compare three large NDBs' experiences with Basel III implementation: Brazilian Development Bank, China Development Bank and Germany's KfW. We find that the biggest constraint from Basel III comes less from its levels of comprehensiveness and complexity and more from tightening the levels of capital requirements and demanding better capital quality. The disincentive to the use of internal models and changes in the method for the calculation of operational risks may result in a substantial increase in required capital. Meanwhile, the new large exposure rule may dilute the banks' focus on large, infrastructure projects; the high-risk weights for exposures to project finance and equity may hinder NDBs from using these financing modalities extensively to support large and complex projects and activities that involve innovation financing.

 

KEYWORDS

Financial regulation; Basel III; National Development Banks; KfW; BNDES; CDB

 

JEL CODES

F55; F63; F65; G18; G28; G32; G38; H81; N2

 

https://www.tandfonline.com/doi/full/10.1080/09538259.2021.1977541?src=

 

This is an open source journal article for free downloading. 

 

Attachments：

ROPE_Should National Development Banks be Subject to Basel III.pdf