Determinants Of European Banks' Capital Adequacy

This paper examines the factors affecting the Common Equity Tier 1 Ratio (CET1), which is a measure of the relationship between core capital and the risk-weighted assets of banks. The research is based on a randomly selected sample from the group of banks examined by the European Central Bank authorities. The ECB conducted stress tests assessing the CET1 Ratio with respect to the Basel III regulations. The findings confirm the hypothesis about the impact of bank size and the risk indicators (risk-weight assets to total assets ratio and the share of loans in total assets) on banks’ capital adequacy. They also confirm strong effect of competitive pressure and the negative correlation between the CET1 Ratio and the share of deposits in non-equity liabilities, which may be explained by the existence of the deposit insurance system. Finally the paper presents the limitations of the study and conclusions regarding possible further research in this subject area.

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“The Crooked Smile of TCR”: Banks’ Solvency and Restructuring Costs in the European Banking Industry

SAGE Open ◽

10.1177/21582440211045962 ◽

2021 ◽

Vol 11 (3) ◽

pp. 215824402110459

Author(s):

Małgorzata Iwanicz-Drozdowska ◽

Krzysztof Jackowicz ◽

Maciej Karczmarczyk

Keyword(s):

Probability Function ◽

Bank Failure ◽

Capital Adequacy ◽

Special Importance ◽

Stress Tests ◽

Distribution Probability ◽

Total Capital ◽

European Banking ◽

European Banks ◽

Bank Restructuring

In this study, we analyze the probability of bank failure, the expected losses, and the costs of bank restructuring with the application of a lognormal distribution probability function for three categories of European banks, that is, small, medium, and large, over the post-crisis period from 2012 to 2016. Our goal was to determine whether the total capital ratio (TCR) properly reflects banks’ solvency under stress conditions. We identified a phenomenon that one can call the “crooked smile of TCR”. Medium-sized banks with relatively high TCRs performed poorly in stress tests; however, the probability of bank failure increases slightly with the size of the bank, while the TCR decreases. We claim that the focus on capital adequacy measures is not sufficient to achieve the goal of improving banks’ stability and reducing their restructuring costs. Our results are of special importance for medium-sized banks, as these banks are not regularly subjected to publicly available stress tests.

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Sources Of Non-Performing Loans In Turkish Banking System

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v5i10.2595 ◽

2011 ◽

Vol 5 (10) ◽

Author(s):

Gokhan Karabulut ◽

Mehmet Huseyin Bilgin

Keyword(s):

Financial Stability ◽

Deposit Insurance ◽

Developing Economies ◽

Banking System ◽

Bank Loans ◽

System Stability ◽

Insurance System ◽

Turkish Government ◽

Deposit Insurance System ◽

The Impact

The purpose of this paper is to examine the impact of the unlimited deposit insurance on non-performing loans and market discipline. Deposit insurance program play a crucial role in achieving financial stability. Governments in many advanced and developing economies established deposit insurance schemes for reducing the risk of systemic failure of banks. Deposit insurance has a beneficial effect of reducing the probability of a bank run.  However deposit insurance systems have its own set of problems. Deposit insurance systems create moral hazard incentives that encourage banks to take excessive risk. Turkey established an explicit deposit insurance system in 1960. Until 1994, the coverage determined by a flat rate but in that date, Turkey experienced a major economic crisis. In April 1994, Turkish government started to apply an unlimited deposit insurance scheme to restore banking system stability. Unlimited deposit insurance caused a remarkable increase at non-performing loans. This paper empirically estimates the impact of unlimited deposit insurance system on non-performing bank loans (NPLs) and analyses the other potential sources of NPLs.

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SISTEM PENJAMINAN SIMPANAN (DEPOSIT INSURANCE SYSTEM) PADA INDUSTRI PERBANKAN INDONESIA

AT-TIJARAH: Jurnal Penelitian Keuangan dan Perbankan Syariah ◽

10.52490/at-tijarah.v1i2.717 ◽

2019 ◽

Vol 1 (2) ◽

pp. 77-90

Author(s):

Sjafruddin Sjafruddin

Keyword(s):

Deposit Insurance ◽

Insurance Premium ◽

Bank Risk ◽

Contagion Effect ◽

Insurance System ◽

Guarantee System ◽

Deposit Insurance System ◽

The Government ◽

Public Costs ◽

The Impact

Banking plays a very important role in the economy along with its function to channel funds from parties who have excess funds (surplus of funds) to those who need funds (lack of funds). If the banking industry does not work well, the economy will become inefficient and the expected economic growth will not be achieved. The risks that are always inherent in the financial and banking sectors, can trigger a crisis at any time and result in a collapse of the country's economy. To overcome the impact of the crisis, the government must pay quite large public costs. This article analyzes several important concepts, namely bank risk and the contagion effect, the operation of a deposit guarantee system that has been implemented in various countries after a financial crisis and how the deposit guarantee program is implemented in Indonesia. The results show that the Deposit Insurance System (DIS) can be implemented through law enforcement system, market discipline, political and economic freedom, low levels of corruption, strict regulations inbanking sector, setting an adequate deposit insurance premium based on the level of bank risk , and selective deposit guarantees. Keywords: Deposit Insurance System,Indonesia Deposit Insurance Corporation, Risk Abstrak Perbankan memegang peran yang sangat penting dalan perekonoman seiring dengan fungsinya untuk menyalurkan dana dari pihak yang mempunyai kelebihan dana (surplus of funds) kepada pihak-pihak yang membutuhkan dana (lack of funds). Apabila industri perbankan tidak bekerja dengan baik, maka perekonomian menjadi tidak efisien dan pertumbuhan ekonomi yang diharapkan tidak akan tercapai. Risiko yang selalu melekat dalam sektor keuangan dan perbankan, dapat memicu terjadinya krisis sewaktu-waktu dan berakibat lumpuhnya ekonomi negara. Untuk menanggulangi dampak krisis tersebut, pemerintah harus mengeluarkan biaya publik cukup besar. Artikel ini menganalisis beberapa konsep penting, yaitu risiko bank dan efek penularan (Contagion Effect),penyelenggaraan sistem penjaminan simpanan yang telah di implementasikan berbagai negara setelah terjadi krisis keuangan dan bagaimana implementasi program penjaminan simpanan di Indonesia.Hasilnya menunjukkan bahwaDeposit Insurance System (DIS) dapat diimplementasikan melalui sistem penegakan hukum yang kuat, disiplin pasar, kebebasan politik dan ekonomi, tingkat korupsi yang rendah, regulasi khususnya di bidang perbankan yang kuat, penetapan premi penjaminan simpanan yang memadai dan berdasarkan tingkat risiko bank, serta pemberian jaminan simpanan yang selektif. Kata Kunci:Deposit Insurance System, Lembaga Penjamin Simpanan, Risiko

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Is Bigger Better? The Impact of the Size of Banks on Credit Ratings

e-Finanse ◽

10.2478/fiqf-2020-0010 ◽

2020 ◽

Vol 16 (2) ◽

pp. 24-36

Author(s):

Patrycja Chodnicka-Jaworska

Keyword(s):

Credit Ratings ◽

Capital Adequacy ◽

Panel Data Models ◽

Management Quality ◽

Financial Conditions ◽

Thomson Reuters ◽

Dependent Variables ◽

European Banks ◽

The Impact

Abstract The aim of the paper was to analyse the factors influencing European banks’ credit ratings by taking into account the size of these institutions. A literature review onthe indicators that can impact bank notes has been made. As a result, the following hypotheses have beendrawn:banks’ capital adequacy, profitability, liquidity and management quality have a significant influence on bank credit ratings. Bigger banks receive higher credit ratings than the smaller ones in similar financial conditions. To verify the presented hypotheses ordered logit panel data models have been used. The analysis has been prepared by using the quarterly data from the Thomson Reuters database for the period between 1998 to 2015. The European banks’ long-term issuer credit ratings proposed by S&P, Fitch and Moody are used as dependent variables. The sample has been divided into subsamples according to the size of a bank andbanking sector and capitalization.

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Real Deposit Insurance Coverage: An International Study

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v25i3.1022 ◽

2011 ◽

Vol 25 (3) ◽

Author(s):

Marieta Velikova ◽

Kevin Rogers

Keyword(s):

Deposit Insurance ◽

Banking Sector ◽

Insurance Coverage ◽

International Study ◽

Political Rights ◽

Political Factors ◽

Insurance System ◽

Deposit Insurance System ◽

Political Economic ◽

The Impact

Recently several countries have implemented explicit deposit insurance systems. In most countries the adoption of an explicit deposit insurance system followed a banking crisis. This paper examines the impact of demographic, social, and political factors on the presence of an explicit deposit insurance system in a country. Moreover, for a subset of countries with explicit deposit insurance system we try to identify demographic, political, economic, and financial factors that affect the level of deposit insurance coverage. The findings suggest that life expectancy and political rights are related to whether an explicit deposit insurance system is in place or not. For countries with explicit deposit insurance systems the level of income, the importance of the banking sector within the financial system, and the development of domestic banking sector have a significant impact on the level of deposit insurance coverage level. The level of income, deposit money bank assets to GDP ratio, bank overhead costs to total assets ratio, presence of co-insurance, and type of administration are statistically significant in explaining differences in the level of coverage among countries.

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Research on the Deposit Insurance Pricing Under the Marketing RMB Interest Rate

Applied Finance and Accounting ◽

10.11114/afa.v2i2.1721 ◽

2016 ◽

Vol 2 (2) ◽

pp. 86

Author(s):

Lingyan Sun ◽

Tianning Shi ◽

Panlu Shi

Keyword(s):

Interest Rate ◽

Interest Rates ◽

Deposit Insurance ◽

Insurance Pricing ◽

Insurance System ◽

Functional Representation ◽

Interest Rate Marketization ◽

Deposit Insurance System ◽

The Interest Rate ◽

The Impact

The deposit insurance pricing is the core issue of deposit insurance system, it determines the success or failure of the deposit insurance system in a way. In the current deposit insurance pricing methods, we treat the interest rates as a constant. With the interest rate marketization in China, the deposit insurance pricing methods have also changed accordingly. In this paper, we will give a functional representation of the impact of RMB interest rate marketization on interest rate by fitting the coefficients of the cubic function. Then we will use the data of 2013 to prove it. For the points that do not conform to this rule, we also have some explanations related to the major economic events at that time.

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Measurement of Systemic Risk in a Common European Union Risk-Based Deposit Insurance System: Formal Necessity or Value-Adding Process?

Risks ◽

10.3390/risks6040137 ◽

2018 ◽

Vol 6 (4) ◽

pp. 137 ◽

Cited By ~ 1

Author(s):

Aida Barkauskaite ◽

Ausrine Lakstutiene ◽

Justyna Witkowska

Keyword(s):

European Union ◽

Systemic Risk ◽

Deposit Insurance ◽

Current System ◽

Banking System ◽

Risk Indicators ◽

Insurance Fund ◽

Insurance System ◽

Deposit Insurance System ◽

The Stability

Scientific discussions have emphasized that the main problem with the current deposit insurance system is that the current system does not evaluate the risks that banks assume to calculate the deposit insurance premiums in many countries of the European Union (E.U.). Thus, the prevailing system does not safeguard a sufficient level of stability in the banking system. Scientific studies show that the deposit insurance system should consider not only the risk indicators for individual banks, but it must also consider the systemic risk of banks that affects the stability of the banking system. Hence, the question arises as to whether measurements of systemic risk in a common E.U. risk-based deposit insurance system are a formal necessity or if they are a value-adding process. Expanding the discussion of scientists, this article analyzes how contributions to insurance funds would change the banks of Lithuania following the introduction of the E.U.’s overall risk-based deposit insurance system and after taking into consideration the additional systemic risk. The research results that were obtained provide evidence that the introduction of a risk-based deposit insurance system would redistribute payments to the deposit insurance fund between banks operating in Lithuania, and, thereby, would contribute to a reduction in the negative effects of the deposit insurance system and would improve the stability in the financial system.

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FAKTOR-FAKTOR YANG MEMPENGARUH TERHADAP TINGKAT DEPOSIT BANK UMUM SYARIAH PERIODE 2011-2018

Jurnal Ekonomi Syariah Teori dan Terapan ◽

10.20473/vol6iss201912pp2451-2470 ◽

2020 ◽

Vol 6 (12) ◽

pp. 2451

Author(s):

Sri Fatimah Luliansari ◽

Dian Filianti

Keyword(s):

Financial Services ◽

Commercial Banks ◽

Deposit Insurance ◽

Secondary Data ◽

Fixed Effect Model ◽

Capital Adequacy ◽

Insurance System ◽

Bank Deposits ◽

Deposit Insurance System ◽

Capital Adequacy Ratio

This study aims to determine the effect of partial and simultaneous variables of Capital Adequacy Ratio (CAR), Non Performing Financing (NPF), and Deposit Insurance System (DIS) on Deposit Rates of Islamic commercial banks in the 2011-2018 period. The data used in this study are secondary data from the Financial Services Authority Report and Sharia Banking Annual Report 2010-2018. The analytical method used in this study is the penel data regression analysis test, where the sample used amounted to 11 Islamic commercial banks obtained by purposive sampling method. The results of the analysis of the best model data used by the author are the Fixed Effect Model. On the results of this researchers simultaneously all variables affect the level of Islamic commercial bank deposits. But partially the CAR and NPF variables have a positive effect on the deposit rate while the DIS does not affect the deposit rate.Keywords: Capital Adequacy Ratio (CAR), Non Performing Financing (NPF), Deposit Insurance system (DIS), Tingkat Deposit

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The Impact of Credit Risk Management on the Profitability of a Commercial Bank: The Case of BGFI Bank Congo

International Journal of Economics and Finance ◽

10.5539/ijef.v12n3p21 ◽

2020 ◽

Vol 12 (3) ◽

pp. 21

Author(s):

Ossou Ndzila Fred Nelson

Keyword(s):

Risk Management ◽

Credit Risk ◽

Negative Impact ◽

Capital Adequacy ◽

Risk Indicators ◽

Positive Contribution ◽

Credit Risk Management ◽

Loan Loss ◽

Management Indicators ◽

The Impact

This study examines the impact of credit risk management on the profitability of BGFI Bank Congo, by identifying credit risk indicators and profitability measurement ratios over the period of 2010-2019. The results indicate that profitability is somewhat affected by credit risk management as measured by its credit risk management indicators. The non-performing loan ratio (NPLR), the capital assets ratio (CAR), and the loan loss provision ratio (LLPR) show a negative impact on ROE. These three ratios contribute negatively, while the CAR makes a positive contribution to Return on assets (ROA) and the ratio of client loans and short-term financing (RCLSTF) on return on equity (ROE). Thus, credit risk management has a significant impact on profitability. The study also shows that other selected credit risk management indicators have a significant impact on the Bank's profitability, such as the loan provision ratio (LLPR) and the clean capital adequacy ratio.

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FACTORS AFFECTING PERFORMANCE AND THE IMPACT ON CUSTOMER TRUST OF SYSTEMIC BANK IN INDONESIA PERIOD 2012-2017

International Journal of Engineering Technologies and Management Research ◽

10.29121/ijetmr.v6.i6.2019.391 ◽

2020 ◽

Vol 6 (6) ◽

pp. 26-39

Author(s):

Noor Salim ◽

Firman Julian

Keyword(s):

Panel Data Analysis ◽

Capital Adequacy ◽

Return On Assets ◽

Financial Ratio ◽

Factors Affecting ◽

Net Interest Margin ◽

Income Ratio ◽

Customer Trust ◽

Factors Affecting Performance ◽

The Impact

The aim of this study was to analyze the factors that influence Performance and Its Impact on Customer Trust of Systemic Bank period 2012-2017. The independent variable of this study uses the financial ratio of Non-Performing Loans (NPL), Cost Income Ratio (CIR), Net Interest Margin (NIM), and Capital Adequacy Ratio (CAR). Performance measured by Return on Assets (ROA), and for the Customer Trust variable measured by Bank Rating. The study used panel data analysis and the process was using Eviews version 9.0. The results of the analysis in this study indicate that (1) NPL has a negative and not significant effect on ROA, (2) CIR has a negative and significant effect on ROA, (3) NIM has a positive and significant effect on ROA, (4). CAR has a negative and not significant effect on ROA, (5) NPL, CIR, NIM and CAR simultaneously have a positive and significant effect on ROA, (6) NPL has a positive and not significant effect on Rating. (7) CIR has a negative and not significant effect on Rating, (8) NIM has a negative and significant effect on Rating. (9) CAR has a positive and not significant effect on Rating, (10) NPL, CIR, NIM and CAR simultaneously have a positive and significant effect on Rating, (11) ROA has a negative and not significant effect on Rating.

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