Basel III: Countercyclical Capital Buffer Proposal-the Case of Baltics

Braslins, Girts; Arefjevs, Ilja

doi:10.1016/j.sbspro.2013.12.945

“…Second, because shareholders indirectly control bank behavior, banks will be more careful in investing when they have more shares at stake. Braslins & Arefjevs (2015) Banks tend to maintain buffers above minimum capital requirements and utilize these buffers during periods of stress. In the tier 1 capital buffer theory, it is explained that bank supervisors in each country have the right to assess the adequacy of instruments added to Tier 1 bank capital to increase the total loss absorption capacity-such as subordinated debt and convertible debt.…”

Section: Resultsmentioning

confidence: 99%

Capital Structure: Capital Buffer, Return on Equity, Capital Adequacy Ratio in Go-Public Banking in Indonesia

Wahyudin,

Widiyanti,

Andriana

et al. 2024

jss

0

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Banking companies may be faced with adjustment costs (cost of capital adjustment) to obtain optimal capital ratios. These costs arise when banks increase or obtain new external capital so that capital adjustments can lead to excess or shortage of capital which can have a negative impact and cause banks to be reluctant to react quickly when capital shocks occur. This research explores the most significant factors that influence bank capital policy choices in Indonesia. This study examines the financing choices of 8 banks for the 2013-2022 period using panel data regression analysis techniques with STATA.17. The results of the Random Effect Model Estimation research where bank companies in Indonesia have high leverage support the fact that the nature of bank business is different from non-banking companies. The significant negative relationship of the capital buffer is in line with the too big fail theory, packing order theory and agency theory, as well as the Retrun On Equity and Capital Adequancy Ratio variables which have a significant positive relationship at an accuracy level of 85.01%, so in other words banking companies can use debt to finance the company on the basis of agency or managerial policies and strategies, thereby proposing pecking order theory with the assumption that there is information asymmetry and agency costs that are relevant both in the long term.

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“…Second, because shareholders indirectly control bank behavior, banks will be more careful in investing when they have more shares at stake. (Brasliņš & Arefjevs, 2014) Banks tend to maintain buffers above minimum capital requirements and utilize these buffers during periods of stress. In the tier 1 capital buffer theory, it is explained that bank supervisors in each country have the right to assess the adequacy of instruments added to Tier 1 bank capital to increase the total loss absorption capacity-such as subordinated debt and convertible debt.…”

Section: Empirical Discussionmentioning

confidence: 99%

Capital Structure: Capital Buffer, Return On Equity, Capital Adequacy Ratio In Go-Public Banking In Indonesia

Wahyudin,

Widiyanti,

Andriana

et al. 2024

AJESH

0

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Banking companies may be faced with adjustment costs (cost of capital adjustment) to obtain optimal capital ratios. These costs arise when banks increase or obtain new external capital so that capital adjustments can lead to excess or shortage of capital which can have a negative impact and cause banks to be reluctant to react quickly when capital shocks occur. This research explores the most significant factors that influence bank capital policy choices in Indonesia. This study examines the financing choices of 8 banks for the 2013-2022 period using panel data regression analysis techniques with STATA.17. The results of the Random Effect Model Estimation research where bank companies in Indonesia have high leverage support the fact that the nature of bank business is different from non-banking companies. The significant negative relationship of the capital buffer is in line with the too big fail theory, packing order theory and agency theory, as well as the Retrun On Equity and Capital Adequancy Ratio variables which have a significant positive relationship at an accuracy level of 85.01%, so in other words banking companies can use debt to finance the company on the basis of agency or managerial policies and strategies, thereby proposing pecking order theory with the assumption that there is information asymmetry and agency costs that are relevant both in the long term.

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“…The amount of capital conservation buffer is set at 2.5% of risk weighted assets and the countercyclical buffer is in the range of 0% -2.5% of risk weighted assets. Specifically for DSIB, the regulator stipulates an additional capital surcharge of 1% -2.5% from the equity (Raharjo et al, 2014) Capital buffer is defined as the excess difference between the capital adequacy ratio (CAR) owned by banks and the minimum bank capital requirements imposed by regulators (Brasliņš & Arefjevs, 2014). Capital buffer can be a protector that can absorb various risks that may arise (Wong et al, 2008).…”

Section: Introductionmentioning

confidence: 99%

Capital Buffer and Determinant Factors of Conventional Banks in Indonesia

Anisa¹,

Sutrisno²

2020

JAFEB

10

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Banking is very regulated by the government and even has to follow regulations issued by the Basel Committee on Banking Supervision, which regulates banking in the world. According to Basel III, banks must provide capital reserves called capital buffers. The purpose of this study is to examine the factors that determine capital buffer. Factors thought to affect the capital buffer studied consisted of profitability (ROA), credit risk (NPL), liquidity risk (LDR), capital adequacy in the previous period (CARt-1), management risk (NIM), and ratio of operating risk (OER). The population in this study is conventional banks listed on the Indonesia Stock Exchange, as many as 42 banks, with a sample of 40 banks taken by purposive sampling method with an observation period of four years with quarterly data (2016-2019). To test the hypotheses, regression panel data is used. After being tested, it turns out that the fixed effect model is better than the common effect and random effect. The results of the study with fixed effect models show that ROA, NPL, and OER significantly and negatively affect capital buffer. CAR t-1 has a positive and significant effect on capital buffer, while LDR and NIM do not affect capital buffer.

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Basel III: Countercyclical Capital Buffer Proposal-the Case of Baltics

Cited by 6 publications

References 4 publications

Capital Structure: Capital Buffer, Return on Equity, Capital Adequacy Ratio in Go-Public Banking in Indonesia

Capital Structure: Capital Buffer, Return on Equity, Capital Adequacy Ratio in Go-Public Banking in Indonesia

Capital Structure: Capital Buffer, Return On Equity, Capital Adequacy Ratio In Go-Public Banking In Indonesia

Capital Buffer and Determinant Factors of Conventional Banks in Indonesia

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