Countercyclical prudential buffers and bank risk-taking

Bank credit risk and macro-prudential policies: Role of counter-cyclical capital buffer

“…Berger et al (2022) suggest that in uncertain times banks 4 Stolz and Wedow (2011) and Shim (2013) find that capital buffers behave counter-cyclically over the business cycle. Illueca et al (2022) uncover a positive impact of counter-cyclical prudential buffers on bank risk-taking, with dynamic loan loss provisioning being linked with timely loan loss provisioning reductions. Gómez et al (2020) show that the impact of counter-cyclical capital requirements is larger for weaker banks and riskier debtors and when economic conditions deteriorate.…”

Does prudential capital reduce bank risk-taking? Empirical evidence from the Indonesian banks industry

“…It reveals efficiency with minimum insolvency of a bank (Adu, 2022;Gaganis et al, 2020). We determine Z-score as follows (Illueca et al, 2022;Moudud-Ul-Huq, 2019;Son et al, 2022;Toh & Zhang, 2022):…”

“…Das & Rout (2020) found an affirmative correlation involving bank risk activity and adequacy of capital. Anginer et al (2021), Illueca et al (2022), Mateev et al (2021), Le et al (2022), and Son et al (2022) show a positive correlation between equity ratio on the financial stability of commercial banks or adversely affects bank risk-taking. However, they generally utilized risk-based and non-risk-based capital requirements to examine how market capitalization affected bank risk-taking.…”

“…To the best of our knowledge, we clearly ensure that our study is the first comprising different group of banks in the case of risk-taking analysis in Indonesia. Second, other studies use a non-riskadjusted capitalization ratio such as Anginer et al (2021), Das & Rout (2020), Illueca et al (2022), Mateev et al (2021), Le et al (2022), andSon et al (2022), while we employ both risk-adjusted capitalization ratios and prudential capital buffers to cover the implementation of macroprudential policy instruments. Third, we also contribute to extending the capital buffer ratio by adding regulatory capital pressure to provide a deeper capitalization analysis for specific domestic-systemically important banks (D-SIB) regulations.…”

Countercyclical capital buffers and credit supply: Evidence from the COVID-19 crisis

“…In 2000, Spain introduced the dynamic provisioning scheme which demands banks to build up a dynamic provision fund in good times to cover credit losses in bad times. This particular policy tool acts against the observation that banks tend to provision more in crisis times which increases the procyclicality of lending ( Laeven and Majnoni, 2003 ) and banks’ risk taking ( Illueca et al., 2022 ). Unlike the Basel III countercyclical capital buffer that uses CET1 capital, the dynamic provision fund uses Tier 2 capital.…”