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Inverse ‘U’ shape
- Using a sample of over 1,800 banks in 135 countries, I find that the relationship between capital regulation and bank risk-taking (measured by z-score) is an inverse ‘U’ shape. That is, as capital ratios increase, a bank will take less risk initially, then more risk.
onlinelibrary.wiley.com/doi/10.1111/acfi.12595Capital regulation and bank risk-taking – new global evidence
Jan 22, 2015 · Starting from the debate of the prudential regulation after the financial crisis, this paper reviews the main empirical contributions on the role of capital regulation in the determination of banks’ capital ratios and risk exposure to evaluate bank behavior.
- Alessandra Tanda
- 2015
Dec 1, 2012 · Two opposite effects of capital regulation: a current binding capital constraint lowers risk-taking but a future binding constraint increases risk-taking of banks. Banks maximise the option value of bank equity.
- Claudio Borio, Haibin Zhu
- 2012
Jan 9, 2021 · In this paper, we look at the effect of capital on the risk of large commercial banks. In particular, we thoroughly scrutinize different definitions of bank capital (risk-based and non-risk-based capital and capital buffer ratios). Capital fills in as a security component to absorb losses.
- Faisal Abbas, Omar Masood, Shoaib Ali, Sohail Rizwan
- 2021
1. Introduction . In this paper, we analyze relationships among risk taking by banks, their ownership structures, and national bank regulations.
- 245KB
- Luc Laeven, Ross Levine, Ross Levine
- 42
- 2009
Oct 1, 2024 · These results suggest that the quality of regulatory capital may curb bank excessive risk-taking when funding liquidity risk is low, in line with findings from Khan et al. (2017) where banks with high deposit ratios take on less risk when holding high capital buffers. In other words, the greater is the risk of the refinancing of debt, the ...
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Mar 6, 2009 · In lowly concentrated markets, capital regulation is effective in mitigating risk taking behavior because banks’ franchise values are low and banks have incentives to pursue risky strategies in order to increase their franchise values.
