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Do capital requirements affect bank efficiency? Evidence from China

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  • Pessarossi , Pierre

    ()
    (BOFIT)

  • Weill , Laurent

    ()
    (BOFIT)

Abstract

This paper contributes to the debate on the effect of capital requirements on bank efficiency. We study the relation between capital ratio and bank efficiency for Chinese banks over the period 2004-2009, taking advantage of the profound regulatory changes in capital requirements that occurred during this period to measure the exogenous impact of an in-crease in the capital ratio on banks’ cost efficiency. We find that such an increase has a positive effect on cost efficiency, the size of which depends to an extent on the bank’s ownership type. Our results therefore suggest that capital requirements can improve bank efficiency.

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File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/2013/dp2813.pdf
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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 28/2013.

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Length: 28 pages
Date of creation: 08 Nov 2013
Date of revision:
Handle: RePEc:hhs:bofitp:2013_028

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Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
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Web page: http://www.suomenpankki.fi/bofit_en/
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Keywords: bank; capital requirements; efficiency; China;

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