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On the Behavior and Determinants of Risk‐Based Capital Ratios: Revisiting the Evidence from UK Banking Institutions

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  • WILLIAM B. FRANCIS
  • MATTHEW OSBORNE

Abstract

Using bank-level panel data from the United Kingdom, this paper investigates the factors that influence banks' choice of risk‐based capital ratios. The study focuses on evaluating the role of regulatory capital requirements. Findings indicate that such requirements, even when not binding, affect banks' capital management practices and suggest that banks maintain targeted buffers above regulatory thresholds. That behavior differs across several dimensions, including bank size, nearness to regulatory minimum, reliance on core (equity) capital and exposure to market discipline. Capital ratios also vary over the economic cycle. These findings have implications for the ongoing review of international capital standards.

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File URL: http://hdl.handle.net/10.1111/j.1468-2443.2010.01112.x
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Bibliographic Info

Article provided by International Review of Finance Ltd. in its journal International Review of Finance.

Volume (Year): 10 (2010)
Issue (Month): 4 (December)
Pages: 485-518

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Handle: RePEc:bla:irvfin:v:10:y:2010:i:4:p:485-518

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1369-412X

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Cited by:
  1. Balázs Égert & Douglas Sutherland, 2012. "The nature of financial and real business cycles: The great moderation and banking sector pro cyclicality," EconomiX Working Papers 2012-15, University of Paris West - Nanterre la Défense, EconomiX.
  2. Emanuel Kopp & Christian Ragacs & Stefan W. Schmitz, 2010. "The Economic Impact of Measures Aimed at Strengthening Bank Resilience – Estimates for Austria," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 20, pages 86-114.
  3. R. Glenn Hubbard, 2013. "Financial regulatory reform: a progress report," Review, Federal Reserve Bank of St. Louis, issue May, pages 181-198.

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