Basel III may fuel US banks’ lending decline in Third World, central bankers say

Basel III may have contributed to a post-crisis decline in lending from US and other global banks to developing economies, Third World central bankers and international researchers said.

The 2017 bank capital standards, which should be reviewed, have been “developed primarily with large cross-border banks in advanced economies in mind,” said the Center for Global Development report released last week.

The think tank's report also called on the Switzerland-based Basel Committee on Banking Supervision to open its deliberations to more small and less-developed countries.

Separately, Bank for International Settlements chief Agustin Carstens appealed to central banks last week to expand “financial inclusion,” citing the lack of access to bank accounts among many residents of Africa, Asia and the Americas.

“Innovation and technology are needed,” he told an Indian banking audience.*

Together, the think tank report and the global authority’s speech suggest that, in the wake of post-crisis global banking changes, a spotlight may be trained on how central banks can contribute to global economic development.

— Think tank report —

The Center for Global Development task force responsible for the report includes central bankers from Uganda, Jordan and Botswana, and former central bankers from Chile and Ireland.

The 86-page report said while financial regulation minimizes risks to economic stability, it “is also essential to support economic development and poverty reduction.”

Since the 2007-2009 financial crisis, global banks’ lending to emerging markets and developing economies has fallen “sharply,” the report said. These banks’ lending to advanced economies has recovered since 2014.

The report cited several possible factors for the bank lending decline, including Basel III, but said more analysis is needed.

It called on regulators in advanced economies to make bank data on foreign exposures public. It said this data should include loans to emerging markets.

The report also urged studies by the World Bank, the Financial Stability Board and the International Monetary Fund.

The decline in bank lending to emerging markets has been only partly offset by increases in bond issuance by these economies and in lending from big banks in developing economies.