The role of cost of capital in regulatory capital discrepancies among developing countries
Abstract
Capital as a regulatory instrument has been shown to contribute to competitiveness distortions between
developed and developing countries. There is a dearth of literature that analyses the possibility of further
competitiveness discrepancies to which capital requirements may contribute among developing countries.
This article explores whether regulatory capital requirements lead to unequal competitive conditions
between developing countries based on their costs of capital. It also attempts to identify drivers of such
discrepancies. Data of 52 financial institutions from 20 countries spread across 4 geographical regions are
used for the analysis.