Bank risk-taking, risk-hedging and the effects of the risk-based bank capital regulation

2005 ◽  
pp. 213-224
Keyword(s):  
Risk Taking ◽  
Bank Risk ◽  
Capital Regulation ◽  
Bank Capital ◽  
Risk Hedging ◽  
Bank Capital Regulation

scholarly journals A Macroeconomic Model With Financially Constrained Producers and Intermediaries

Econometrica ◽  
2021 ◽  
Vol 89 (3) ◽  
pp. 1361-1418
Author(s):  
Vadim Elenev ◽  
Tim Landvoigt ◽  
Stijn Van Nieuwerburgh
Keyword(s):  
Financial Crises ◽  
Capital Requirements ◽  
Financial Fragility ◽  
Financial Intermediaries ◽  
Capital Regulation ◽  
Sharp Change ◽  
Bank Capital ◽  
Financial Firms ◽  
Bank Capital Regulation

How much capital should financial intermediaries hold? We propose a general equilibrium model with a financial sector that makes risky long‐term loans to firms, funded by deposits from savers. Government guarantees create a role for bank capital regulation. The model captures the sharp and persistent drop in macro‐economic aggregates and credit provision as well as the sharp change in credit spreads observed during financial crises. Policies requiring intermediaries to hold more capital reduce financial fragility, reduce the size of the financial and non‐financial sectors, and lower intermediary profits. They redistribute wealth from savers to the owners of banks and non‐financial firms. Pre‐crisis capital requirements are close to optimal. Counter‐cyclical capital requirements increase welfare.

scholarly journals Dimensions of bank capital regulation: A cross-country analysis

2014 ◽  
Vol 61 (4) ◽  
pp. 415-439 ◽  
Author(s):  
Matej Marinc ◽  
Mojmir Mrak ◽  
Vasja Rant
Keyword(s):  
World Bank ◽  
Capital Regulation ◽  
Bank Capital ◽  
Level Playing Field ◽  
Playing Field ◽  
The World Bank ◽  
Bank Capital Regulation ◽  
Country Analysis ◽  
Cross Country ◽  
The Eu

This paper identifies the main dimensions of capital regulation. We use survey data from 142 countries from the World Bank?s (2013) database covering various aspects of bank regulation. Using multiple explorative factor analysis, we identify two main dimensions of capital regulation: complexity of capital regulation and stringency of capital regulation. We show that even countries with a common legal and regulatory framework differ substantially in terms of capital regulation. For example, the level of stringency of capital regulation varies substantially across the EU countries, potentially distorting the level playing field.

scholarly journals INTERNATIONAL STANDARDS FOR BANK CAPITAL REGULATION

2021 ◽  
Vol 1 (36) ◽  
pp. 35-45
Author(s):  
V. Kovalenko ◽  
S. Sheludko ◽  
N. Radova ◽  
F. Murshudli ◽  
K. Gonchar
Keyword(s):  
Financial Crisis ◽  
Economic Crisis ◽  
Financial Stability ◽  
International Standards ◽  
Capital Adequacy ◽  
Capital Regulation ◽  
Bank Capital ◽  
Banking Supervision ◽  
New Paradigm ◽  
Bank Capital Regulation

The paper analyzes the evolution of the introduction of international standards for bank capital regulation. The aim of the research is to study international standards for bank capital regulation and their impact on financial stability and sustainability of domestic banking systems. The 2007—2009 Global Financial Crisis was perhaps the greatest banking and financial crisis since bank failures and the financial panic of the Great Depression in early 1930s. According to academics and professionals, there has been much debate over the last decade as to whether the 2007—2009 banking crisis was primarily a solvency crisis or a liquidity crisis. Capital adequacy of banks today is the main indicator of increasing society’s confidence in banking systems. The flexible and balanced implementation of Basel Committee on Banking Supervision (BCBS) recommendations on the assessment of bank capital adequacy is of particular importance in the context of the deepening economic crisis caused by COVID-19 quarantine restrictions. Regulation of bank capital is primarily settles by the ability to execute basic functions inherent in it. A number of shocks in connection with the crisis require the renewal and search for a new paradigm of regulation, which today is focused on achieving financial stability, overcoming pro-cyclicality, especially in the banking sector. One of the latest developments in the field of bank capital regulation has been the implementation of international banking supervision standards recommended by BCBS, which have been transformed from Basel I, Basel II, Basel III, Basel 3.5 to Basel IV. The new ideology suggests that in times of financial and economic crisis or in anticipation of growing uncertainty in the economy, it is necessary to abandon the idea of bank capital management and the creation of financial reserves to maintain liquidity and stability of financial institutions. These measures will not be able to protect the bank from default and bankruptcy. This ideology has become a new paradigm of effective banking regulation, which can be formulated as an accepted set of three vectors: risk; risk management; risk-oriented supervision.

Capital regulation, competition and risk-taking behavior of Indian banks in a simultaneous approach

2018 ◽  
Vol 44 (4) ◽  
pp. 459-477 ◽  
Author(s):  
Santi Gopal Maji ◽  
Preeti Hazarika
Keyword(s):  
Human Capital ◽  
Risk Taking ◽  
Value Added ◽  
Capital Adequacy ◽  
Bank Risk ◽  
Capital Regulation ◽  
Content Type ◽  
Risk Taking Behavior ◽  
Indian Banks ◽  
The Impact

Purpose The purpose of this paper is to investigate the association between capital regulation and risk-taking behavior of Indian banks after incorporating the influence of competition. Further, the study intends to enrich the existing literature by providing empirical evidence on the role of human resources in managing risk along with the influence of other bank specific and macroeconomic variables. Design/methodology/approach Secondary data on 39 listed Indian commercial banks are collected from “Capitaline Plus” corporate data database for a period of 15 years. Capital is measured by capital adequacy ratio as defined by the regulators, and two definitions of risk – credit risk and insolvency risk – are employed. Competition is measured by Herfindahl-Hirschman deposits index, concentration ratio and H-statistic. The value-added intellectual coefficient model is employed to compute human capital efficiency (HCE). Three-stage least squares technique in a simultaneous equation framework is used to estimate the coefficients. Findings The study finds that absolute level of regulatory capital and bank risk are positively associated, although the influence of capital on risk is not statistically significant. The influence of competition on risk is negative for all the models, which supports the “competition stability” view. The impact of human capital on bank risk is also negative for all cases. Practical implications The findings of the study are useful for the decision makers in several ways based on the inverse influence of competition and HCE on bank risk. Further, the observed positive association between capital and risk indicates that the capital regulation is not sufficient to enhance the stability in the banking sector. Originality/value This is the first study in the Indian context that incorporates the competition in the banking industry as an explanatory variable in the extant bank capital and risk relationship.

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