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Bank capital and risk in the South Eastern European region

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  • Panayiotis P. Athanasoglou

    () (Bank of Greece)

Abstract

This 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 behavior, whilst the relationship between risk and rate of growth of GDP is ambitious.

Suggested Citation

  • Panayiotis P. Athanasoglou, 2011. "Bank capital and risk in the South Eastern European region," Working Papers 137, Bank of Greece.
  • Handle: RePEc:bog:wpaper:137
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    References listed on IDEAS

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    Cited by:

    1. repec:ipf:finteo:v:39:y:2015:i:3:p:139-169 is not listed on IDEAS
    2. Sophocles Vogiazas & Constantinos Alexiou, 2013. "Liquidity And The Business Cycle: Empirical Evidence From The Greek Banking Sector," Economic Annals, Faculty of Economics, University of Belgrade, vol. 58(199), pages 109-126, October -.
    3. Eftychia Nikolaidou & Sofoklis Vogiazas, 2014. "Credit Risk Determinants for the Bulgarian Banking System," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(1), pages 87-102, February.
    4. Ana Kundid Novokmet, 2015. "Cyclicality of bank capital buffers in South-Eastern Europe: endogenous and exogenous aspects," Financial Theory and Practice, Institute of Public Finance, vol. 39(2), pages 139-169.
    5. Irina Raluca Busuioc Witowschi & Florin Alexandru Luca, 2016. "Bank Capital, Risk and Performance in European Banking. A Case Study on Seven Banking Sectors," Prague Economic Papers, University of Economics, Prague, vol. 2016(2), pages 127-142.

    More about this item

    Keywords

    Banking; capital; risk; liquidity; regulation; dynamic panel estimation;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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