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Basel III, capital stability, risk-taking, ownership: Evidence from Asia

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  • Chalermchatvichien, Pichaphop
  • Jumreornvong, Seksak
  • Jiraporn, Pornsit

Abstract

This study investigates the associations among bank risk-taking, ownership concentration, and the recently proposed standard for capital stability (Basel III). Consistent with theory, the evidence shows that a rise in ownership concentration by one standard deviation increases the extent of risk-taking by as much as 6–8%. Although Basel III does not start taking effect until 2013, we hypothetically apply the capital stability standard on a sample of East Asian banks in the period 2005–2009. Our results suggest that an improvement in capital stability by one standard deviation diminishes the extent of risk-taking by 5.37% (as measured by the bank's Z-score). We also find that the standard for capital stability would have been more effective in countries with better economic development. Our results provide insights into the likely effects of Basel III and should be useful to a wide range of audiences, including policymakers, regulators, bankers, as well as practitioners and researchers.

Suggested Citation

  • Chalermchatvichien, Pichaphop & Jumreornvong, Seksak & Jiraporn, Pornsit, 2014. "Basel III, capital stability, risk-taking, ownership: Evidence from Asia," Journal of Multinational Financial Management, Elsevier, vol. 28(C), pages 28-46.
  • Handle: RePEc:eee:mulfin:v:28:y:2014:i:c:p:28-46
    DOI: 10.1016/j.mulfin.2014.09.001
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    2. Ashraf, Dawood & Rizwan, Muhammad Suhail & L’Huillier, Barbara, 2016. "A net stable funding ratio for Islamic banks and its impact on financial stability: An international investigation," Journal of Financial Stability, Elsevier, vol. 25(C), pages 47-57.
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    More about this item

    Keywords

    Basel III; Risk-taking; Bank ownership; Capital stability; Financial crisis;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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