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Regulation, bank capital, and bank risk: evidence from the Lebanese banking industry

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  • Rim El-Khoury

    (Notre Dame University, Louaize)

Abstract

This paper analyzes the relationship between change in capital and change in risk for a sample of 23 Lebanese banks between 2009 and 2014. Using the simultaneous equations model, our evidence reveals that banks determine their capital and risk levels simultaneously, with a negative relationship. While banks adjust their capital rapidly, they adjust their risk slowly. Furthermore, undercapitalized banks adjust their capital levels more rapidly than well-capitalized banks, and they increase their capital when they decrease their risk. However, there is no conclusive evidence regarding the role of regulatory pressure in driving risk-taking behavior. Finally, there are no major differences in the relationships between capital and risk regardless of whether banks are listed or not.

Suggested Citation

  • Rim El-Khoury, 2020. "Regulation, bank capital, and bank risk: evidence from the Lebanese banking industry," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(3), pages 241-255, September.
    • Handle: RePEc:pal:jbkreg:v:21:y:2020:i:3:d:10.1057_s41261-019-00111-2
    DOI: 10.1057/s41261-019-00111-2
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