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The Effectiveness of Bank Capital Adequacy Requirements : A Theoretical and Empirical Approach

Author

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  • Barrios, Victor E.

    (Universidad de Valencia, Departamento de Analisis Economico)

  • Blanco, Juan M.

    (Universidad de Valencia, Departamento de Analisis Economico)

Abstract

The aim of this paper is to analyse how banking firms set their capital ratios, that is, the rate of equity capital over assets. In order to study this issue, two theoretical models are developed. Both models deal with the existence of an optimal capital ratio; the first one for firms not affected by capital adequacy regulation, the second one for firms which are. The models have been tested by estimating a disequilibrium model using data of Spanish savings banks.

Suggested Citation

  • Barrios, Victor E. & Blanco, Juan M., 2000. "The Effectiveness of Bank Capital Adequacy Requirements : A Theoretical and Empirical Approach," LIDAM Discussion Papers IRES 2001001, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2001001
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2001-1.pdf
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    References listed on IDEAS

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    3. Kim, Daesik & Santomero, Anthony M, 1988. " Risk in Banking and Capital Regulation," Journal of Finance, American Finance Association, vol. 43(5), pages 1219-1233, December.
    4. Keeley, Michael C. & Furlong, Frederick T., 1990. "A reexamination of mean-variance analysis of bank capital regulation," Journal of Banking & Finance, Elsevier, vol. 14(1), pages 69-84, March.
    5. Wall, Larry D. & Peterson, David R., 1987. "The effect of capital adequacy guidelines on large bank holding companies," Journal of Banking & Finance, Elsevier, vol. 11(4), pages 581-600, December.
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    More about this item

    Keywords

    capital ratio; capital adequacy regulation; disequilibrium model;
    All these keywords.

    JEL classification:

    • 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
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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