Get Bank Capital and Risk-Taking: The Impact of Capital PDF

By Stéphanie M. Stolz

ISBN-10: 3540485449

ISBN-13: 9783540485445

ISBN-10: 3540485457

ISBN-13: 9783540485452

The year-long consultations on Basel II replicate the overseas acclaim for capital requisites as a regulatory tool. but, the impression of capital specifications on banks' habit isn't really absolutely understood. the purpose of this learn is to give a contribution to this figuring out via answering the next questions: How do banks alter capital and possibility after a rise in capital requisites? How do banks regulate their regulatory capital buffer over the enterprise cycle? And, what's the influence of banks' constitution worth at the regulatory capital buffer?

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Extra info for Bank Capital and Risk-Taking: The Impact of Capital Regulation, Charter Value, and the Business Cycle

Example text

Given the simultaneous equations model of (17) and (18), the estimation strategy has to account for the endogeneity of the regressors ARISK and ACAP. 16 3SLS produces asymptotically more efficient estimates than 2SLS, as 3SLS uses the information that the disturbance terms in the two structural equations are contemporarily correlated (Zellner and Theil 1962). As 2SLS and 3SLS produce quite similar estimates for my sample, I present only the 3SLS estimates. The pooled 3SLS is the standard approach taken by the empirical literature.

In order to comply with the 8 percent regulatory minimum, banks can adjust the numerator and/or the denominator of the Basel capital ratio. In the definitions chosen in this chapter, ACAP reflects adjustments in the numerator (capital), while ARISK reflects adjustments in the denominator (risk-weighted assets). Hence, CAP and RISK can be interpreted as the two variables banks have at their discretion to manage their Basel capital ratio. This interpretation is logically independent of whether or not RISK is a correct measure of asset risk.

In addition and in line with the empirical literature, Chapter 3 also tests the hypothesis that banks with low capital buffers adjust capital and risk faster than banks with high capital buffers. Hence, taking as the null hypothesis that banks with low capital buffer do not adjust capital and risk faster, Chapter 3 also tests the following hypotheses: H3: Banks with low capital buffers adjust capital faster than banks with high capital buffers. H4: Banks with low capital buffers adjust risk faster than banks with high capital buffers.

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Bank Capital and Risk-Taking: The Impact of Capital Regulation, Charter Value, and the Business Cycle by Stéphanie M. Stolz


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