Bank capital and risk in the South Eastern European region
AbstractThis paper examines the simultaneous relationship between bank capital and risk. A model is set up which assumes that banks’ decisions regarding capital and risk are made endogenously in a dynamic pattern. A simultaneous equation system was estimated using an unbalanced panel of SEE banks from 2001 to 2009. A key result for the whole sample of banks is the relationship between regulatory (equity) capital and risk which is positive (negative). However, a positive two-way relationship between regulatory capital and risk was found only in less than-adequately capitalized banks, which also increased substantially their risk in 2009. Thus, banks’ decisions differentiate between equity capital and risk and regulatory capital and risk. A positive, significant and robust effect of liquidity on capital was identified. Both regulatory and equity capital exhibit procyclical behaviour, whilst the relationship between risk and rate of growth of GDP is ambitious.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 32002.
Date of creation: May 2011
Date of revision:
Banking; capital; risk; liquidity; regulation; panel estimation;
Other versions of this item:
- Panayiotis P. Athanasoglou, 2011. "Bank capital and risk in the South Eastern European region," Working Papers 137, Bank of Greece.
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-07-13 (All new papers)
- NEP-BAN-2011-07-13 (Banking)
- NEP-REG-2011-07-13 (Regulation)
- NEP-RMG-2011-07-13 (Risk Management)
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