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The Impact of Bank Capital Requirements in Indonesia


  • Donsyah Yudistira

    (Loughborough University)


This paper provides new evidence on the effects of bank capital requirements in Indonesia. In investigating the impact of bank capital requirements, we set up a simple model of the banking firm which can detect the impact of capital regulation on banks’ behaviour as well as having possible effects on the economy. In estimation, we use monthly panel data of all the banks that existed between 1997-1999, during which the crisis and regulatory forbearance occurred. Based on our econometric tests, we choose the Fixed Effects panel regression model because the bank specific characteristics are found to be crucial in Indonesia. Overall, the results suggest that regulatory capital takes part in the change of Indonesian banks’ behaviour. Bank credit is found to decelerate but with less than before the Indonesian government implemented a forbearance in capital requirements. The view that banks choose to shrink their balance sheet activities during the capital shocks is consistent with the findings.

Suggested Citation

  • Donsyah Yudistira, 2002. "The Impact of Bank Capital Requirements in Indonesia," Finance 0212002, EconWPA, revised 18 May 2003.
  • Handle: RePEc:wpa:wuwpfi:0212002
    Note: Type of Document - Acrobat PDF; prepared on IBM PC - PC- TEX/UNIX Sparc TeX; to print on Any; pages: 24 ; figures: N/A. Converted into Acrobat PDF from Latex, 24 pages.

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    References listed on IDEAS

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    Cited by:

    1. Yudistira, Donsyah, 2004. "Efficiency In Islamic Banking: An Empirical Analysis Of Eighteen Banks," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 12, pages 2-19.
    2. Jaouadi, Said & Ben Jazia, Rachida & Ziedi, Azza, 2011. "Comparaison de l'efficacité et l'efficience des Banques islamiques et conventionnels: cas de l'Indonésie
      [Efficiency and effectiveness comparison of Islamic and conventional banking: case of Indone
      ," MPRA Paper 57551, University Library of Munich, Germany, revised 24 Jul 2014.
    3. M. Kabir Hassan & M. Ershad Hussain, 2006. "Basel II and Bank Credit Risk: Evidence from the Emerging Markets," NFI Working Papers 2006-WP-10, Indiana State University, Scott College of Business, Networks Financial Institute.
    4. Iman Gunadi & Advis Budiman, 2012. "Optimisation of Bank Portfolio Composition in Indonesia," EcoMod2012 4166, EcoMod.
    5. Hadad, Muliaman D. & Agusman, Agusman & Monroe, Gary S. & Gasbarro, Dominic & Zumwalt, James Kenton, 2011. "Market discipline, financial crisis and regulatory changes: Evidence from Indonesian banks," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1552-1562, June.
    6. Donsyah Yudistira, 2004. "Efficiency of Islamic Banks: an Empirical Analysis of 18 Banks," Finance 0406007, EconWPA.

    More about this item


    Capital Regulation; Panel Regression; Indonesia.;

    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

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