Forecasting the Costs and Benefits of Implementing Basel III for North African Emerging Economies: An Application to Egypt and Tunisia
Forecasting the Costs and Benefits of Implementing Basel III for North African Emerging Economies looks at the potential impact of Basel III on Tunisia and Egypt. The study demonstrates that Egypt would be faster to recover than Tunisia, largely due to the fact that its banking sector is adequately prepared to meet the capital adequacy requirements demanded by Basel III. Moreover, the study finds that the application of Basel III would set in motion three unwanted impacts: First, the ability to raise more capital would significantly impair bank profitability increasing the likelihood that stability would come at the cost of decreased lending capacity. Second, the enduring restraint of interbank funding could lead to sporadic episodes of liquidity crunches. Finally, the construction and/or closure of some business activities creates the possibility that customers might take their quest for market risk to the unregulated financial system.