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On the Behavior and Determinants of Risk‐Based Capital Ratios: Revisiting the Evidence from UK Banking Institutions

  • WILLIAM B. FRANCIS
  • MATTHEW OSBORNE

Using bank-level panel data from the United Kingdom, this paper investigates the factors that influence banks' choice of risk‐based capital ratios. The study focuses on evaluating the role of regulatory capital requirements. Findings indicate that such requirements, even when not binding, affect banks' capital management practices and suggest that banks maintain targeted buffers above regulatory thresholds. That behavior differs across several dimensions, including bank size, nearness to regulatory minimum, reliance on core (equity) capital and exposure to market discipline. Capital ratios also vary over the economic cycle. These findings have implications for the ongoing review of international capital standards.

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File URL: http://hdl.handle.net/10.1111/j.1468-2443.2010.01112.x
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Article provided by International Review of Finance Ltd. in its journal International Review of Finance.

Volume (Year): 10 (2010)
Issue (Month): 4 (December)
Pages: 485-518

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Handle: RePEc:bla:irvfin:v:10:y:2010:i:4:p:485-518
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