The effects of Basel III on the intermediation and market activities of WAEMU banks

KOUAKOU, Thiédjé Gaudens-Omer (2025): The effects of Basel III on the intermediation and market activities of WAEMU banks.

Abstract

This paper analyzes the effect of Basel III adapted to WAEMU on the behavior of banks in the zone (intermediation and market activities). After having developed a model for optimizing the return on bank equity, under various constraints (balance sheet constraints, Basel III regulatory constraints), we resort to linear programming via the Danzig simplex algorithm and to a structure of reasonable rates to obtain the optimal values of the various bank balance sheet items. The results, obtained by comparing these theoretical values with the values observed before Basel III (before January 1, 2018), show an increase in the supply of loans, obtained not only from deposits and bank refinancing but also via resources from the financial markets. We can also observe the intuitive result of an increase of bank reserves in line with the constraint that Basel III imposes on banks to increase their liquidity. In short, Basel III tends to strengthen bank financing in the zone, while improving the soundness of banks through the constitution of larger reserves.

• Item Type: MPRA Paper
• Language: English
• Keywords: prudential regulation, calibration, credit supply, linear programming
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C44 - Operations Research ; Statistical Decision Theory; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

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