The Pro-Cyclical Impact of Basel III Regulatory Capital on Bank Capital Risk

Song, Guoxiang

doi:10.1108/s1569-375920140000096002

Cited by 6 publications

(4 citation statements)

References 5 publications

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Section: Literature Reviewmentioning

confidence: 99%

“…Moreover, capital adequacy ratios are affected by the pro-cyclicality of regulatory capital and risk-weighting (e.g., FSA (2009), Song (2014) and Konczal (2017)). For example, Song (2014) documents that the Basel III regulatory capital of six U.S. GSIBs has significant positive correlation with U.S. GDP growth rate and significant negative correlation with long-term interest rates. As a result, the current high capital adequacy ratios of U.S. GSIBs could be lifted by the recent U.S. economic growth and low long-term interest rates, and these ratios probably do not reflect these banks' true solvency risk in the long run.…”

Section: Literature Reviewmentioning

confidence: 99%

“…First, their failure could impact the world financial system because of their size, interconnectedness, substitutability, cross-jurisdictional activity, and complexity (Haubrich & DeKoning, 2017;Koutmos, 2019). Second, GSIBs are very different from other banks and it is important to evaluate them separately (Song, 2014). Third, the results of this case study can be compared with those in the literature and as a result contribute to the debate in the literature.…”

Section: Sample and Datamentioning

confidence: 99%

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Evaluating Large Bank Risk Using Stock Market Measures in the Basel III Period

Song

2022

J Corp Accounting Finance

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There is a puzzle in the literature which seems to indicate that high capital levels introduced by Basel III increase bank risk. This paper attempts to solve this puzzle by investigating whether the risk of the eight U.S. global systemically important banks (GSIBs) increased in the Basel III period from previous periods. This paper uses case studies of the eight U.S. GSIBs to evaluate whether Basel III has changed their risk perceived by the market. Basel III has reduced the systematic risk of equity of U.S. GSIBs perceived by the stock market, and it does not explain the decline in return on equity (ROE) which may indicate some increase in large bank financial risk. The paper breaks down stock market measures into drivers which capture systematic risk of equity and other drivers which capture financial risk, and it finds new evidence which solves the puzzle in the literature on large bank risk. The findings of the paper help investors, creditors and regulators to have a clear understanding of the market perception of large bank risk. The paper provides new methods and evidence which could help regulators to assess the impact of Basel III on bank risk perceived by the market.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Sample and Datamentioning

confidence: 99%

See 1 more Smart Citation

Evaluating Large Bank Risk Using Stock Market Measures in the Basel III Period

Song

2022

J Corp Accounting Finance

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“…This transferability is not permanent, and jurisdiction-specific capital transfer laws may supersede the qualification of such under stressed market conditions (SunGard 2015). In addition, each subsidiary is required to submit to the group a set of reports on the LCR, where if the subsidiary is in a different country, the reporting differs slightly based on that country's regulatory requirements for LCR reporting (Song 2014).…”

Section: Challenges Of Implementing the Lcrmentioning

confidence: 99%

The Good and Bad News about the New Liquidity Rules of Basel III in Islamic Banking of Malaysia

Zainudin

Rasid

Omar

et al. 2019

JRFM

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How has Basel III (Bank for International Settlements), regarding the computation, measurement, and management of the liquidity coverage ratio (LCR), vitalized the Islamic banking sector in emerging economies? Vice versa, what is the Islamic banking sector's capacity to respond in embracing Basel III? This study aims to review the current issues faced by a bank as it discusses the current regulatory guidelines and operational challenges in implementing the system. Based on the implementation of LCR preliminary secondary data of Malaysian banks between 2010 and 2016, this study finds that the readiness of LCR system implementation in the Islamic banking industry is currently low because LCR is still relatively new for all financial institutions and vendors. There is a huge gap between the present system infrastructure of the banks and the LCR model requirements as defined by BNM (Bank Negara Malaysia) under Basel III. Nevertheless, this finding opens new horizons of understanding and practically offers further investigations for the whole banking sector in Malaysia. Thus, policy makers, regulators, and industry players should utilize a unique framework for Islamic banks when strategizing liquidity risk management.

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Large US bank takeovers in 2008: performance and implications

Song

2021

JCMS

Self Cite

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PurposeBecause systemically important banks' takeovers in the US were expected to contain the 2008 global financial crisis (GFC) but were found to have imposed large cost on shareholders, this paper examines the effectiveness of these acquisitions during the GFC and investigates what went wrong with the market for corporate control of large banks.Design/methodology/approachThis paper presents a model of the disciplinary takeover based on the efficient market hypothesis which provides appropriate measures for it to examine the financial performance of acquiring banks after takeover.FindingsThe results indicate that the takeover market for large banks was ineffective in two aspects: the market did not distinguish strong banks from weak banks before the crisis and acquirers performed worse after takeover. Such ineffectiveness reflects the fundamental deficiencies of large bank takeovers arising from some key distinguishing characteristics of large banks.Research limitations/implicationsThe sample size of systemically important banks' takeovers is small so large-sample standard statistical inferences cannot be used.Practical implicationsThe deficiencies of large bank takeovers need to be rectified in order to aid in resolving future crises.Originality/valueThis paper provides rare and detailed insight based on case studies of large US bank takeovers during the GFC.

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The Pro-Cyclical Impact of Basel III Regulatory Capital on Bank Capital Risk

Cited by 6 publications

References 5 publications

Evaluating Large Bank Risk Using Stock Market Measures in the Basel III Period

Evaluating Large Bank Risk Using Stock Market Measures in the Basel III Period

The Good and Bad News about the New Liquidity Rules of Basel III in Islamic Banking of Malaysia

Large US bank takeovers in 2008: performance and implications

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