Bank Size, Risk-taking and Capital Regulation in Bangladesh

Abstract

This study examines the impact of bank size on bank regulatory capital ratios and risk-taking behavior using a panel dataset of 30 Bangladeshi commercial banks over the period 2008-2012. The relationship between bank regulatory capital ratios and bank risk-taking is also examined. For empirical analysis, generalized methods of moments (GMM) panel method are used to explore the relationships among bank size, regulatory capital ratios and risk-taking behavior. Empirical results show that large banks hold lower amount of capital and take higher level of risk. Findings also show a reverse relationship between bank capital levels and bank risk-taking; that is, banks holding higher levels of regulatory capital are significantly less risky. Findings of this study has important implications for the Bangladeshi government, policy makers, banking regulators and bank stakeholders regarding bank size, regulatory capital requirements and overall banking sector risk-taking behavior.

Trade Openness and Bank Risk-Taking Behavior: Evidence from Emerging Economies

“…This result is consistent with recent studies that find a negative association between capital requirements and bank risk Rahman et al 2015). The positive association of the Explicit Deposit Insurance dummy variable with bank risk-taking proxies shows that explicit deposit insurance generates moral hazard problems and leads banks to increase risk-taking.…”

“…The extant literature has focused on the structure of the banking industry (Boyd and Nicolo 2005;Martinez-Miera and Repullo 2010), banking regulations Haq et al 2014;Haq and RichardHeaney 2012;Rahman et al 2015), macroeconomic indicators such as GDP per capita, GDP growth, and inflation (Ali and Daly 2010;Bouvatier et al 2014;Castro 2013;Chaibi and Ftiti 2015;Festić et al 2011), the level of financial development (Vithessonthi 2014), legal institutions (Cole and Turk 2013;Houston et al 2010), financial openness (Bourgain et al 2012;Cubillas and González 2014), national culture , and political institutions ) as significant determinants of cross-country variation in bank risk-taking. We analyze the impact of trade openness on bank risk-taking behavior and add to this literature.…”

Capital Regulation and Bank Risk-Taking Behavior: Evidence from Pakistan

“…Following recent studies on bank capital and risk, such as Altunbas, Carbo, Gardener, and Molyneux [17], Lee and Hsieh [31], and Rahman et al [42], we include variables to control for bank size (Log_TA), liquidity (Liquid_TA), and level of deposits (Deposits_TA).…”

The impact of ownership structure on bank credit risk: Evidence from Bangladesh

“…The prior evidence showed a mixed result due to the geographical distinctions. Recent studies conducted by Rahman et al (2015) Jacques and Nigro (1997) found that bank size is a significant determinant of risk.…”