The Relationship Between Risk and Capital: Evidence from Indian Public Sector Banks
The study investigates the relationship between changes in risk and capital in the public sector banking system in India, using both the seemingly unrelated regression (SUR) and the two stage least square (2SLS) method of estimation. Empirical findings establish a negative and significant impact of size on capital, indicating that large banks increased their ratio of capital to risk weighted assets less than other banks. Regulatory pressure is also found to have a negative and significant impact on the ratio of capital to risk weighted assets. Ceteris paribus, adequately capitalised banks decrease their capital ratio more prominently than other banks.
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- 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.
- Rime, Bertrand, 2001. "Capital requirements and bank behaviour: Empirical evidence for Switzerland," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 789-805, April.
- Raj Aggarwal & Kevin T. Jacques, 1998. "Assessing the impact of prompt corrective action on bank capital and risk," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 23-32.
- Nachane, D M & Narain, Aditya & Ghosh, Saibal & Sahoo, Satyananda, 2001. "Regulating Market Risks in Banks: A Comparison of Alternate Regulatory Regimes," MPRA Paper 17148, University Library of Munich, Germany.
- 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.
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