Minimum capital requirements, bank supervision and special resolution schemes. Consequences for bank risk-taking

Vollmer, Uwe; Wiese, Harald

doi:10.1016/j.jfs.2013.07.004

Cited by 13 publications

(7 citation statements)

References 14 publications

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“…This is particularly important when banks have different incentives to become interconnected and the regulator faces an informational disadvantage. Finally, the paper is also close to the literature on the effects of capital requirements under asymmetric information (e.g., VanHoose 2007 and references therein, Blum 2008, Vollmer andWiese 2013) and incentive based regulation (e.g., Campbell et al 1992, Giammarino et al 1993).…”

Section: Introductionsupporting

confidence: 63%

A Microfounded Design of Interconnectedness-Based Macroprudential Regulation

Fique

2015

SSRN Journal

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The failure of large, complex and interconnected banks has severe consequences to the real economy. To address the challenges posed by globally systemically important banks (G-SIBs), the Basel Committee on Banking Supervision recommended an "additional loss absorbency requirement" for these institutions. Motivated by this instrument of macroprudential regulation, which reflects concern over contagion, I develop a microfounded design of interconnectedness-based capital charges. These charges increase the costs of establishing interbank connections, which leads to a non-monotonic welfare effect. While reduced interconnectedness decreases welfare by restricting banks' ability to insure against liquidity shocks, it also increases it by reducing contagion in default states. Thus, the regulator faces a trade-off between efficiency and financial stability. I show that the trade-off implied by incentive compatible interconnectedness-based charges is steeper the stronger G-SIBs implicit support is when banks' tail risk exposure is private information. This finding underscores the importance of complementary measures, such as resolution regimes, which mitigate these frictions and consequently reinforce the efficiency and effectiveness of these capital requirements.

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Section: Introductionsupporting

confidence: 63%

A Microfounded Design of Interconnectedness-Based Macroprudential Regulation

Fique

2015

SSRN Journal

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“…The study investigates the effect of risk-based capital and traditional non-risk based capital on the bank risk and performance of Bangladesh. For this purpose, the study uses two simultaneous equations by following the previous literature (Zheng et al, 2017;Tan and Floros, 2013;Vollmer and Wiese, 2013;Francis and Osborne, 2012;Fiordelisi et al, 2011;Ben Naceur and Kandil, 2009;Altunbas et al, 2007;Nier and Baumann, 2006;Lee and Hsieh, 2013;Hussain and Hassan, 2005;Ayuso et al, 2004;Jacques and Nigro, 1997) as follows: Panel C: Bank-year observations Bank-year observations consideration for the study: 30 banks Â 16 years (2000-2015) 480 bank-years Less: bank-year observations without available information 67 bank-years Final total bank-year observations under the study 413 bank-years…”

Section: Empirical Models and Specification Of Variablesmentioning

confidence: 99%

Bank risk and performance in an emerging market setting: the case of Bangladesh

Majumder

2018

JEFAS

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Purpose This study aims to investigate the impacts of bank capital requirements on the performance and risk of the emerging economy, i.e. Bangladeshi banking sector. Design/methodology/approach The study applies an unbalanced panel data which comprises 30 banks yielding a total of 413 bank-year observations over the period 2000 to 2015. Findings Using generalized methods of moments, the empirical results of this research reveal that bank capital is positively and significantly impressive on bank performance, whereas negatively and significantly impact on risk. The study also finds the inverse relationship between risk and performance in both the performance and risk equations. The results also indicate that there is a persistence of performance and risk from one year to the next year. Originality/value This is the unique investigation on Bangladeshi bank industry that considers the simultaneous effect of bank capital requirements on risk and performance. Therefore, it is predicted that the empirical evidence of this research shows policy implications to the regulatory authority of Bangladeshi banking industry to determine relevant policies.

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“…Currently, there is an ongoing international policy debate vis-à-vis how capital affects bank risks. The proponents of this view, such as the Basel Committee, argue that capital-based measures are crucial for bank risk mitigation (International Monetary Fund, 2010) from both macro-prudential (de Souza, 2016; Karmakar, 2016; Meeks, 2017) and micro-prudential point of views (Blahova, 2015; Vollmer and Wiese, 2013). Nevertheless, some studies find only limited evidence regarding the role of bank capital as an indicator for bank failure (e.g.…”

Section: Introductionmentioning

confidence: 99%

Risk and capital in Indonesian large banks

Raz

2018

JFEP

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Purpose The purpose of this paper is to examine the behavior of banking risk in the emerging economies, particularly Indonesia and contribute to the discussion on the existing policy debate regarding the impact of capital on bank risk. Design/methodology/approach This study investigates the relationship between bank risk and capital using data on 15 Indonesian large banks between 2008 and 2015, using z-score and Delta-CoVaR to measure both idiosyncratic and systemic risks. Findings The empirical investigation suggests that capital has a negative and significant relationship with these risk measures. The authors also find that higher systemic risk encourages banks to increase their capital. However, similar evidence is not found in the idiosyncratic risk models. Finally, the role of capital in reducing risk is considered robust only during the normal periods, as banks may increase their assets risk during times of financial distress. Originality/value Systemic risk (CoVaR) is used to represent bank risk. This study focuses on the Indonesian banking sector (capture institutional arrangements and regulatory environment). It covers the period of 2008 GFC and post-crisis period.

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Minimum capital requirements, bank supervision and special resolution schemes. Consequences for bank risk-taking

Cited by 13 publications

References 14 publications

A Microfounded Design of Interconnectedness-Based Macroprudential Regulation

A Microfounded Design of Interconnectedness-Based Macroprudential Regulation

Bank risk and performance in an emerging market setting: the case of Bangladesh

Risk and capital in Indonesian large banks

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