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This paper examines the effect of Basel III implementation on the access to finance of small and medium-size enterprises in 32 emerging markets and developing economies. Analyzing rich, repeated cross-sectional data and a panel of matched firm-bank data in a difference-in-differences setting with sample selection adjustment, the authors find a short-term, moderately negative effect of Basel III on small and medium-size enterprises' access to financing. The results suggest that firms with access to bank credit prior to Basel III implementation could have been affected less than firms that were initially on the fringes of financial inclusion-firms with only a bank account. The paper fails to find any additional heterogeneous effects across firm size or age, bank capitalization or liquidity, or across countries that transitioned to Basel III from Basel II versus Basel 2.5. Overall, the initial conditions of the banking system as well as of complementary business and financial regulation can co-determine the size of short-term costs from the newly implemented global financial regulation in emerging markets and developing economies.

Bank Regulation --- Basel III --- Emerging Market Economies --- Finance and Financial Sector Development --- Financial Regulation --- Financial Regulation and Supervision --- Firm-Level Data --- Impact Evaluation --- Private Sector Development --- Small and Medium Size Enterprises --- Small And Medium-Sized Enterprises --- SME Finance

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This paper explores the sovereign-bank nexus in emerging markets and developing economies: the interconnectedness between the health of the sovereign and the banking system. Data from 140 emerging markets and developing economies suggest that this nexus is rising. First, banks have increased their exposure to their sovereigns in the past decade. Second, government debt has grown, and fiscal positions have deteriorated, raising the specter of sovereign stress. Third, banking system assets and bank credit to the private sector have steadily increased, which may restrict the sovereign's capacity to contain a banking crisis. Fourth, empirical evidence from 36 emerging markets and developing economies documents the existence of the nexus and suggests that it has increased recently. However, deeper country analysis is required for a better understanding of the sovereign-bank nexus, given country idiosyncrasies, including the structure of sovereign debt and the composition of the investor base, and data lags and opacities. To minimize the adverse effects of the sovereign-bank nexus, efforts should be focused on maintaining fiscal and bank buffers, strengthening surveillance and supervision of the banking system, improving transparency and data quality of bank-sovereign linkages, better addressing the regulatory treatment of the sovereign exposures and government support of the banking sector, and carefully evaluating the policy trade-offs in the sovereign-bank nexus.

Bank Exposure --- Banking System --- Bankruptcy and Resolution of Financial Distress --- Debt Markets --- Default Risk --- Emerging Market Economies --- Finance and Financial Sector Development --- Financial Regulation and Supervision --- Fiscal and Monetary Policy --- Fiscal Trends --- Macroeconomics and Economic Growth --- Public Debt --- Public Sector Development --- Sovereign Debt

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Financial crises are nothing new in the annals of history of the capitalistic path of economic development; indeed, they are part of business cycle. The theoretical basis for this is well entrenched in the concept of ‘Keynesian Cross’. Tales of crises date back centuries, but have taken a new turn as the race for more globalization goes on, which involves liberalizing trade and opening up the financial sector. This has made many nations vulnerable to crises that are likely to be repeated, perhaps frequently. Based on recent experience, warning signs can be seen in the dollar-centric exchange rate, which is the mainstay for the stability of the current global financial system. To a careful observer, there is clearly fatigue in the system.

Special Drawing Rights (SDRs) --- banking crises --- reserve currency --- asymmetry --- derivative --- Asian crisis --- policy uncertainty --- monetary plurality --- mortgage crisis --- nonlinear ARDL --- China --- emerging market economies --- exchange rates --- default swap --- LIBOR --- currency --- cash flow --- Belt and Road Initiative --- money demand --- commodity price stabilisation --- trade balance --- risk management --- Argentina --- RMB internationalization --- GMM --- currency convertibility --- investment --- Grondona system --- exchange rate disconnect puzzle --- monetary policy --- NARDL --- Special Drawing Right --- currency pegs --- international monetary system --- economic institutions --- cointegration --- macroeconomic fundamentals --- currency crisis --- the U.S.A.