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The Effectiveness of Bank Capital Adequacy Requirements : A Theoretical and Empirical Approach

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Author Info

  • Barrios, Victor E.

    (Universidad de Valencia, Departamento de Analisis Economico)

  • Blanco, Juan M.

    (Universidad de Valencia, Departamento de Analisis Economico)

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    Abstract

    The aim of this paper is to analyse how banking firms set their capital ratios, that is, the rate of equity capital over assets. In order to study this issue, two theoretical models are developed. Both models deal with the existence of an optimal capital ratio; the first one for firms not affected by capital adequacy regulation, the second one for firms which are. The models have been tested by estimating a disequilibrium model using data of Spanish savings banks.

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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2001-1.pdf
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    Bibliographic Info

    Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2001001.

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    Length: 25
    Date of creation: 01 Dec 2000
    Date of revision:
    Handle: RePEc:ctl:louvir:2001001

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    Related research

    Keywords: capital ratio; capital adequacy regulation; disequilibrium model;

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    1. Dahl, Drew & Shrieves, Ronald E., 1990. "The impact of regulation on bank equity infusions," Journal of Banking & Finance, Elsevier, vol. 14(6), pages 1209-1228, December.
    2. Lam, Chun H & Chen, Andrew H, 1985. " Joint Effects of Interest Rate Deregulation and Capital Requirements on Optimal Bank Portfolio Adjustments," Journal of Finance, American Finance Association, vol. 40(2), pages 563-75, June.
    3. Allen Berger, 1994. "The Relationship Between Capital and Earnings in Banking," Center for Financial Institutions Working Papers 94-17, Wharton School Center for Financial Institutions, University of Pennsylvania.
    4. Koehn, Michael & Santomero, Anthony M, 1980. " Regulation of Bank Capital and Portfolio Risk," Journal of Finance, American Finance Association, vol. 35(5), pages 1235-44, December.
    5. Kim, Daesik & Santomero, Anthony M, 1988. " Risk in Banking and Capital Regulation," Journal of Finance, American Finance Association, vol. 43(5), pages 1219-33, December.
    6. Santomero, Anthony M & Watson, Ronald D, 1977. "Determining an Optimal Capital Standard for the Banking Industry," Journal of Finance, American Finance Association, vol. 32(4), pages 1267-82, September.
    7. Keeley, Michael C. & Furlong, Frederick T., 1990. "A reexamination of mean-variance analysis of bank capital regulation," Journal of Banking & Finance, Elsevier, vol. 14(1), pages 69-84, March.
    8. Wall, Larry D. & Peterson, David R., 1987. "The effect of capital adequacy guidelines on large bank holding companies," Journal of Banking & Finance, Elsevier, vol. 11(4), pages 581-600, December.
    9. Maddala, G S & Nelson, Forrest D, 1974. "Maximum Likelihood Methods for Models of Markets in Disequilibrium," Econometrica, Econometric Society, vol. 42(6), pages 1013-30, November.
    10. Marcus, Alan J, 1983. " The Bank Capital Decision: A Time Series-Cross Section Analysis," Journal of Finance, American Finance Association, vol. 38(4), pages 1217-32, September.
    11. Shrieves, Ronald E. & Dahl, Drew, 1992. "The relationship between risk and capital in commercial banks," Journal of Banking & Finance, Elsevier, vol. 16(2), pages 439-457, April.
    12. Mingo, John J, 1975. "Regulatory Influence on Bank Capital Investment," Journal of Finance, American Finance Association, vol. 30(4), pages 1111-21, September.
    13. Rochet, Jean-Charles, 1992. "Capital requirements and the behaviour of commercial banks," European Economic Review, Elsevier, vol. 36(5), pages 1137-1170, June.
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