Factors Affecting Bank Soundness Indicators and Effects of Macroprudential Regulations (in Korean)

This paper analyses changes in bank behavior in response to regulations on bank capital ratio, liquidity ratio, and leverage ratio. For the analysis, this paper sets up a theoretical model in which a bank optimizes its asset and funding structure considering the expected profit and its volatility. Then, an empirical estimation is carried out using Korea commercial-bank panel data from 2004.1q-2014.2q. It is found that a decrease in the policy rate or in the house price index brings about a rise in the capital ratio but a fall in the liquidity ratio. Also, an increase in the capital ratio tends to raise the liquidity leverage ratios, while an increase in the leverage ratio raises the capital ratio. Looking at the effects of the regulations, strengthening capital ratio regulation increases the cost of making loans and thereby reduces the amount of loan outstanding and the ratio of loans to total asset. Raising the regulatory liquidity ratio induces an increase in the amount of safe assets and a fall in the ratio of short-term funding to total funding. Meanwhile, the empirical estimation result indicates that the regulations do not significantly affect bank profit and the effectiveness of bank lending channel of monetary policy.