Regulation of Bank Capital and Behavior of Banks: Assessing the US and the EU-15 Region Banks in the 2000-2005 Period
In recent years, regulators have increased their focus on the capital adequacy of banking institutions to enhance their stability, hence the stability of the whole financial system. The purpose of this paper is to assess and compare how American and European banks adjust their level of capital and portfolio risk under capital regulation, whether and how they react to constraints placed by the regulators. In order to do this, we estimate a modified version of the simultaneous equations model developed by Shrieves and Dahl. This model analyzes adjustments in capital and risk at banks when they approach the minimum regulatory capital level. The results indicate that regulatory requirements have the desired effect on bank behavior. Both American and European banks that are close to minimum requirements simultaneously increase their capital. In addition, the US banks decrease their portfolio risk taking.
|Date of creation:||Aug 2007|
|Date of revision:||Aug 2007|
|Contact details of provider:|| Postal: Opletalova 26, CZ-110 00 Prague|
Phone: +420 2 222112330
Fax: +420 2 22112304
Web page: http://ies.fsv.cuni.cz/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James R. Barth & Gerard Caprio, Jr. & Ross Levine, 2002.
"Bank Regulation and Supervision: What Works Best?,"
NBER Working Papers
9323, National Bureau of Economic Research, Inc.
- Barth, James R. & Caprio Jr., Gerard & Levine, Ross, 2001. "Bank regulation and supervision : what works best?," Policy Research Working Paper Series 2725, The World Bank.
- Edward Simpson Prescott, 2004.
"Auditing and bank capital regulation,"
Federal Reserve Bank of Richmond, issue Fall, pages 47-63.
- Aggarwal, Raj & Jacques, Kevin T., 2001. "The impact of FDICIA and prompt corrective action on bank capital and risk: Estimates using a simultaneous equations model," Journal of Banking & Finance, Elsevier, vol. 25(6), pages 1139-1160, June.
- Shrieves, Ronald E. & Dahl, Drew, 1992. "The relationship between risk and capital in commercial banks," Journal of Banking & Finance, Elsevier, vol. 16(2), pages 439-457, April.
- Roman Kraeussl, .
"A Critique on the Proposed Use of External Sovereign Credit Ratings in Basel II,"
0315, University of Crete, Department of Economics.
- Kraeussl, Roman, 2003. "A Critique on the Proposed Use of External Sovereign Credit Ratings in Basel II," CFS Working Paper Series 2003/23, Center for Financial Studies (CFS).
- Andrew Powell, 2004.
"Basel II and Developing Countries: Sailing through the Sea of Standards,"
Business School Working Papers
baseldc, Universidad Torcuato Di Tella.
- Powell, Andrew, 2004. "Basel II and developing countries : Sailing through the sea of standards," Policy Research Working Paper Series 3387, The World Bank.
- Jacques, Kevin & Nigro, Peter, 1997. "Risk-based capital, portfolio risk, and bank capital: A simultaneous equations approach," Journal of Economics and Business, Elsevier, vol. 49(6), pages 533-547.
- Abhiman Das & Saibal Ghosh, 2004. "The Relationship Between Risk and Capital: Evidence from Indian Public Sector Banks," Industrial Organization 0410006, EconWPA.
When requesting a correction, please mention this item's handle: RePEc:fau:wpaper:wp2007_23. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lenka Herrmannova)
If references are entirely missing, you can add them using this form.