Relations between the Basel Index and the Level of Indebtedness of Brazilian Families

Abstract

The Basel Accord imposes a regulatory minimum capital requirement for banks to maintain their liquidity and are less susceptible to shocks from the interconnection of the financial system. Banks need to manage the dynamics of funding and applications in order to avoid excess or shortage of monetary resources, they are exposed to risks such as credit risk and liquidity risk. Credit risk is the risk that the counterparty in the transaction does not honor its obligation. Liquidity risk is the risk of the financial institution become unable to honor its obligations. The debt ratio of Brazilian families grew during the period analyzed, and a high level of debt increases the chances of default and expose financial institutions to credit risk and liquidity risk. The objective of this article is to analyze the relationship between the Basel index released by the banks and the high level of household debt in Brazil. The study used data available at the time series management system (SMS) of the Central Bank of Brazil, which cover the period from January 2005 to December 2013, the following variables: Basel index, debt, inflation IPCA, Selic rate , Delinquency in SPC through an ARCH model (Autoregressive Conditional Heteroskedasticity). The results demonstrate that the Basel index, and the household debt levels have negative correlation, which makes the two vary in opposite directions. We can compare the model results for the Brazilian financial system with what was observed in the US market, as, for example, the perspective of authors who point to the beginning of the financial crisis of 2008, as a result of high indebtedness of American families in the business of mortgages.

Keywords

• Basel index
• household debt
• Basel Accord