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The Determinants of Bank Capital Ratios in a Developing Economy

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Author Info

  • Rubi Ahmad

    ()

  • M. Ariff

    ()

  • Michael Skully

    ()

Abstract

This paper reports new findings on the determinants of bank capital ratios. The results are from an unbalanced panel data set spanning eight years around the period of the 1997-1998 Asian financial crisis. Test results suggest a strong positive link between regulatory capital and bank management?s risk-taking behaviour. The risk-based capital standards of the regulators did not have an influence on how regulatory capital is adjusted by low-capitalized banks, perhaps due to the well-documented banking fragility during the test period. Finally, bank capital decisions seem not to be driven by bank profitability, which finding is inconsistent with developed country literature that has for long stressed the importance of banks? earnings as driving capital ratios. Although the study focuses only on one developing economy, these findings may help to identify the correlates of bank capital ratios in both developed and developing economies since this topic has received scant attention of researchers. These findings are somewhat consistent with how banks engaging in risky lending across the world could have brought on the 2007-2008 banking liquidity and capital erosion crisis.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s10690-009-9081-9
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Bibliographic Info

Article provided by Springer in its journal Asia-Pacific Financial Markets.

Volume (Year): 15 (2008)
Issue (Month): 3 (December)
Pages: 255-272

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Handle: RePEc:kap:apfinm:v:15:y:2008:i:3:p:255-272

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Web page: http://springerlink.metapress.com/link.asp?id=102851

Related research

Keywords: Bank risk; Capital ratios; Financial crisis and capital; Risk-based capital; Risk index; Capital and earnings; G21; G28;

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References

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Citations

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Cited by:
  1. Awojobi, Omotola & Amel, Roya & Norouzi, Safoura, 2011. "Analysing Risk Management in Banks: Evidence of Bank Efficiency and Macroeconomic Impact," MPRA Paper 33590, University Library of Munich, Germany, revised 17 Jul 2011.
  2. Ghosh, Saibal, 2010. "Credit Growth, Bank Soundness and Financial Fragility: Evidence from Indian Banking Sector," MPRA Paper 24715, University Library of Munich, Germany.

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