Should National Development Banks be Subject to Basel III?

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 Develo...

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Published inReview of political economy Vol. 34; no. 2; pp. 249 - 267
Main Authors Gottschalk, Ricardo, Castro, Lavinia B., Xu, Jiajun
Format Journal Article
LanguageEnglish
Published London Routledge 03.04.2022
Taylor & Francis Ltd
Subjects
Banking
Basel III
BNDES
Capital
CDB
Development banks
Finance
Financial regulation
Financing
High risk
Infrastructure
Innovations
KfW
National development
National Development Banks
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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.
AbstractList 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.
Author Castro, Lavinia B.
Gottschalk, Ricardo
Xu, Jiajun
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  surname: Xu
  fullname: Xu, Jiajun
  organization: Institute of New Structural Economics at Peking University
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Copyright 2021 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group 2021
2021 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This work is licensed under the Creative Commons Attribution – Non-Commercial – No Derivatives License http://creativecommons.org/licenses/by-nc-nd/4.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License.
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SubjectTerms Banking
Basel III
BNDES
Capital
CDB
Development banks
Finance
Financial regulation
Financing
High risk
Infrastructure
Innovations
KfW
National development
National Development Banks
Title Should National Development Banks be Subject to Basel III?
URI https://www.tandfonline.com/doi/abs/10.1080/09538259.2021.1977541
https://www.proquest.com/docview/2640174207
Volume 34
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