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Basel 3, Dodd-Frank and sovereign exposures of US banks

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Listed:
  • David P. Ely
  • Mehdi Salehizadeh

Abstract

The Dodd-Frank Wall Street Reform and Consumer Protection Act calls for the elimination of references to credit ratings in US banking regulations. This study's key finding is that US banks' lending to foreign borrowers does not appear to have been closely and consistently correlated with changes in sovereign credit ratings in the recent past. The evidence is weakest over 2007-2012. Thus, it is doubtful that the elimination of references to credit ratings will have a significant impact on banks' lending behaviour toward foreign borrowers. This finding lends support to serious consideration of alternative proposals, including those put forward by US regulators that seek to increase the sensitivity of capital requirements to sovereign risk levels, and one advanced in this study which relies on a joint regulatory mechanism by the BIS and the IMF.

Suggested Citation

  • David P. Ely & Mehdi Salehizadeh, 2013. "Basel 3, Dodd-Frank and sovereign exposures of US banks," International Journal of Financial Services Management, Inderscience Enterprises Ltd, vol. 6(2), pages 118-137.
    • Handle: RePEc:ids:ijfsmg:v:6:y:2013:i:2:p:118-137
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    References listed on IDEAS

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    1. Suk-Joong Kim & Eliza Wu, 2018. "International Bank Flows to Emerging Markets: Influence of Sovereign Credit Ratings and Their Regional Spillover Effects," World Scientific Book Chapters, in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 14, pages 467-515, World Scientific Publishing Co. Pte. Ltd..
    2. Ferreira, Miguel A. & Gama, Paulo M., 2007. "Does sovereign debt ratings news spill over to international stock markets?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3162-3182, October.
    3. Gande, Amar & Parsley, David C., 2005. "News spillovers in the sovereign debt market," Journal of Financial Economics, Elsevier, vol. 75(3), pages 691-734, March.
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