deposits (loans). This would only materialize for banks not (enough) capital constrained, either being well capitalized or undergoing smaller negative capital shocks.

# **4. Sample selection and testing strategy**

We have just shown the impact of a regulatory change under the latter two scenarios and have seen that a regulatory restriction can only reinforce the effect of a crisis on deposits and lending. In turn, this might have as well a detrimental effect on the supply of credit if exercised in a stable economy. The next step is to test those theoretical hypotheses on a sample of banks operating in emerging economies. Although in principle interesting, we disregard the first hypothesis, i.e. the crisis case, given the sufficient evidence already provided in the literature.

In particular, we need to identify those emerging economies in which capital requirements were not only subject to increase, but the increase was also enforced. It is a matter of fact that national regulators had a certain leeway in the effective enforcement of bank CARs. As a result, enforcement didn't always follow the introduction of the 1988 Basel CARs. This was the case especially in countries where the supervisory authority lacked the necessary strength and independence.

In order to identify the emerging economies where bank CARs were effectively enforced, we made an extensive survey of the collection of the IMF Article IV Consultation documents, considering all the reports from the last decade for a large selection of emerging economies. These documents offered us an independent and well informed assessment of whether and when enforcement had followed the introduction of the 1988 Basel CARs.

In these documents we looked for a number of indicators of a more rigorous stance on the part of bank supervisory authorities. Among them, we considered: i) a more severe approach to provisioning practices (e.g. the introduction of more restrictive criteria in the definition of non-performing loans or more stringent provisioning requirements); ii) changes in the bankruptcy regulation; iii) the implementation of bank restructuring programs and/or reorganization of bank supervisory agencies.

On the basis of these indicators we detected 16 countries in which the introduction or the revision of capital requirements was accompanied by measures of more effective supervision. For each of them we have also identified the year in which these measures were taken. This group includes 10 countries in which the regulatory change happened in conjunction with an exchange rate and/or financial crisis (Argentina, Brazil, Hungary, Korea, Malaysia, Mexico, Paraguay, Thailand, Turkey, and Venezuela)'<sup>8</sup> and other 5 non-crisis countries (Chile, Costa Rica, India, Poland, and Slovenia). A sixth non-crisis country (Morocco) had to be eliminated due to the lack of data on bank loans and deposits associated to different accounting procedures of Islamic banking. We also contemplated the possibility of different degrees of enforcement, identifying a subset of

> _18_ We identified crisis countries according to the two lists provided in Detragiache and Demirguc,-Kunt (1998) and Kaminsky and Reinhart (1999). Hungary was added to such a list, since it did undergo a crisis even though it was not highlighted by the two referred studies, which did not consider transition economies. Furthermnore, we did not include India among crisis countries since its banking crisis occurred a few years before India enforced Basel CARs.

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