Effects of the capital requirement concentration on the supply of loan credits.

This study analyzes the effects of the implementation of the capital requirement for market concentration on the credit supply of Peruvian financial institutions. This regulation was announced in July 2011 and became effective in July 2012, with an adaptation period that lasted until July 2016. The requirement consists of an additional effective equity buffer for financial institutions that have an asset level greater than 3 percent of GDP. In this way, the requirement was a simile to the regulation for domestic systemically important banks (D-SIBs) proposed in Basel III. In December 2022, a second version of the requirement came into force, with the objective of more closely resembling the standard proposed by Basel. The effect of the first version of the rule is evaluated, finding that it affected the supply of local and foreign currency loans, with a contraction of 8.5 percent and 4.4 percent, respectively, for each percentage point of additional effective equity requirement with respect to the minimum effective equity base, for the affected banks. In addition, it is found that the reduction came mainly from the riskier credit segments, which shows the effectiveness of the policy in incentivizing banks to reduce their risk exposure. This effect can be disaggregated between the effect of the required capital percentage and the adequacy percentage. In this way, the significance of changes in adequacy percentages can be evaluated. A significant and negative relationship is found between the supply of credit and the increase in the percentage of adequacy. This points to the importance of the design of the adequacy schedule to minimize unintended effects of the policy, for example, that there is a large negative effect in a period where credit conditions are negative. The latest modification of the standard is not evaluated, given the short time since its implementation.