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The effects of capital buffers on profitability: An empirical study

Author

Listed:
  • Benjamin M Tabak

    (Universidade Católica de Brasília)

  • Dimas M Fazio

    (London Business School)

  • Regis A Ely

    (Universidade Federal de Pelotas)

  • Joao M. T. Amaral

    (Universidade de Brasilia)

  • Daniel O Cajueiro

    (UNB)

Abstract

This paper measures the effect of capital buffers and other determinants on banks' profitability in 51 countries during the period of 2000 to 2012. We have found a nonlinear relationship between return on assets and capital buffers. While capital buffers have a positive impact on profitability, its excess can diminish banks' profits. Countries with non-competitive markets do not seem to change this relationship, although higher market power enhances profits. We also examine other determinants of profitability. Since minimal requirements of equity capital are one of the main regulatory instruments for preventing financial risks, we hope that the results of this letter can help financial authorities to also understand the effects of capital buffers on profits.

Suggested Citation

  • Benjamin M Tabak & Dimas M Fazio & Regis A Ely & Joao M. T. Amaral & Daniel O Cajueiro, 2017. "The effects of capital buffers on profitability: An empirical study," Economics Bulletin, AccessEcon, vol. 37(3), pages 1468-1473.
    • Handle: RePEc:ebl:ecbull:eb-16-00820
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    References listed on IDEAS

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    Cited by:

    1. Ely, Regis Augusto & Tabak, Benjamin Miranda & Teixeira, Anderson Mutter, 2019. "Heterogeneous effects of the implementation of macroprudential policies on bank risk," MPRA Paper 94546, University Library of Munich, Germany.
    2. Ely, Regis A. & Tabak, Benjamin M. & Teixeira, Anderson M., 2021. "The transmission mechanisms of macroprudential policies on bank risk," Economic Modelling, Elsevier, vol. 94(C), pages 598-630.
    3. Scalco, Paulo R. & Tabak, Benjamin M. & Teixeira, Anderson M., 2021. "Prudential measures and their adverse effects on bank competition: The case of Brazil," Economic Modelling, Elsevier, vol. 100(C).

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    More about this item

    Keywords

    capital buffer; profitability; banking regulation.;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G1 - Financial Economics - - General Financial Markets

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