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Does banks’ systemic importance affect their capital structure and balance sheet adjustment processes?

Author

Listed:
  • Yassine Bakkar

    () (Université de Limoges, LAPE)

  • Olivier De Jonghe

    () (Economics and Research Department, NBB and European Banking Center, Tilburg University)

  • Amine Tarazi

    () (Université de Limoges, LAPE and Institut Universitaire de France (IUF))

Abstract

Frictions prevent banks to immediately adjust their capital ratio towards their desired and/or imposed level. This paper analyzes (i) whether or not these frictions are larger for regulatory capital ratios vis-à-vis a plain leverage ratio; (ii) which adjustment channels banks use to adjust their capital ratio; and (iii) how the speed of adjustment and adjustment channels differ between large, systemic and complex banks versus small banks. Our results, obtained using a sample of listed banks across OECD countries for the 2001-2012 period, bear critical policy implications for the implementation of new (systemic risk-based) capital requirements and their impact on banks’ balance sheets, specifically lending, and hence the real economy.

Suggested Citation

  • Yassine Bakkar & Olivier De Jonghe & Amine Tarazi, 2019. "Does banks’ systemic importance affect their capital structure and balance sheet adjustment processes?," Working Paper Research 369, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:201903-369
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    Keywords

    ; capital structure; speed of adjustment; systemic risk; systemic size; bank regulation; lending; balance sheet composition;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • 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

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