The Relationship Between Bank Capital Adequacy and Market Measures of Risk

Karels, Gordon V.; Prakash, Arun J.; Roussakis, Emmanuel N.

doi:10.1111/j.1468-5957.1989.tb00045.x

Cited by 24 publications

(18 citation statements)

References 13 publications

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“…This implies that a 1% increase in capital decreases risk by 0.510 % for all BRICS sampled banks, increases risk by 0.09% for commercial banks and 0.012% for investment banks. However, this result contradicts with those of Jahankhani and Lynge (1980), Brewer and Lee (1986), Karels et al (1989), Kwan and Eisenbeis (1997), Demirgüç-Kunt and Kane (2002) and Agusman et al (2008). We find high persistence of the risk variable (IRISK) with a high coefficient (0.520).…”

Section: Tablecontrasting

confidence: 56%

“…Indeed, these authors showed that most regulators encourage banks to increase their capital compared to the risk level. However, the relationship between equity to total assets ratio and bank risk was found to be negative (Jahankhani and Lynge, 1980;Brewer and Lee, 1986;Karels et al, 1989;Jacques and Nigro, 1997;Bolt and Tieman, 2004;Agusman et al, 2008;Agoraki et al, 2011;Lee and Hsieh, 2013). Bolt and Tieman (2004) argued that capital requirement is a strict criterion for supplying loans.…”

Section: Bank Capital and Riskmentioning

confidence: 99%

“…The simultaneity between the degree of capital and profitability (risk) may be resolved by the use of GMM model which takes into account the causal effect of the exogenous component. Jahankhani and Lynge (1980), Brewer and Lee (1986), Karels et al (1989) and Jacques and Nigro (1997) argued that equity to total assets ratio is negatively related to risk. Ho and Saunders (1981), Allen (1988), Angbazo and Narayanan (1996) and Saunders and Schumacher (2000) analysed the effect of bank risk on the net interest margin as a measure of bank profitability.…”

Section: Bank Capital and Riskmentioning

confidence: 99%

See 2 more Smart Citations

Bank capital, profitability and risk in BRICS banking industry

Jabra

Mighri

Mansouri

2017

GBER

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This paper analyses the relationship between bank capital, risk and profitability for the BRICS banking industry data from 2004 to 2012. We use a dynamic panel data model based on two-step GMM estimation procedure. For the sake of analysis, we differentiate between before and after crisis periods in order to highlight the impact of financial crisis on clearing up the above relationship. The main empirical results are summarised as follows: 1) capital and risk are significantly and negatively related, while capital and profitability are significantly and positively linked; 2) bank capital has the greatest positive impact on ROE measure of profitability for investment banks; 3) BRICS investment banks are likely associated with a more sound financial supervision and technology; 4) regulatory quality and institutional developments are dependent upon differences in profitability and risk; 5) Results also provide evidence that financial crisis affects considerably the relationship between capital, risk and profitability. 90W. Ben Jabra et al.

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Section: Tablecontrasting

confidence: 56%

Section: Bank Capital and Riskmentioning

confidence: 99%

Section: Bank Capital and Riskmentioning

confidence: 99%

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Bank capital, profitability and risk in BRICS banking industry

Jabra

Mighri

Mansouri

2017

GBER

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“…Some literature address the positive relation between risk and capital such as Ghosh (2014); Ahmad et al Karels et al (1989) address negative association between capital and risk. Again some authors define the relationship differently.…”

Section: The Relationship Between Capital Requirement and Riskmentioning

confidence: 99%

Do Human Capital and Cost Efficiency Affect Risk and Capital of Commercial Banks? An Empirical Study of a Developing Country

Zheng

Gupta

Moudud‐Ul‐Huq

2018

Asian Economic and Financial Review

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Article History JEL Classification:C2, G17, D22, G28, F20.As a striking force and operational optimization, human capital and cost efficiency of commercial banks are worth considering factors in decision making. Using simultaneous equation models this study delves the interrelationship between bank risk, capital and efficiency of a sample developing country-Bangladesh incorporating new dimension human capital efficiency along with existing cost efficiency through Stochastic Frontier Analysis (SFA). The empirical results of generalized methods of moments estimator (GMM estimator) from 2000-2015 show that capitalized commercial banks are more capable of absorbing risk and enhancing human capital efficiency. Increasing amount of risk leads banks to improve their level of capital but that reduces the cost efficiency of banks. We also find the significant impact of risk and capital on the efficiency of banks. With the increase of capital and risk, the human capital of banks behaves more efficiently whereas the efficiency of cost reduces substantially. Although no significant relationship observed between risk and human capital efficiency in risk equation, the inefficiency of cost find inversely associated with risk and positively associated with capital in risk and capital equations respectively. Contribution/ Originality: This study originates new estimation of technical efficiency named Human capital efficiency along with existing cost efficiency using Stochastic Frontier Analysis to examine the simultaneous relationship between risk, capital, and efficiency of a sample Asian country Bangladesh.

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“…Moreover, Aggarwal and Jacques (1998) found that both under-capitalized banks and capitalized banks increased their capital ratios and reduced risk. Karels et al (1989) used a univariate analysis of 24 Taiwanese banks over the period . They found that when capital requirements are high, risk level is low.…”

Section: The Capital Adequacy Ratiomentioning

confidence: 99%

Bank Transparency and Risk Taking: Empirical Evidence from Tunisia

Dhouibi¹,

Mabrouk²,

Emna³

2016

IJEF

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An important unresolved issue in finance is the extent to which bank transparency promotes or undermines banking risk-taking. Financial accounting information is an essential component of transparency and a necessary condition for market discipline. This latter can be conceptualized as a market-based incentive scheme with which investors in banking securities penalize banks for greater risk-taking by asking for higher returns on their investments. However, in developing countries, where financial markets are insufficiently developed, the role of market discipline in limiting banks' risk-taking may be restricted. This paper examines the impact of transparency, as measured by voluntary disclosure of financial information, on the fragility of Tunisian banks. This study is motivated by the decision of the Central Bank of Tunisia to implement the directives of the second Basel Accord to improve the soundness and the safety of the Tunisian banking system. We examine a sample of ten Tunisian banks listed on the Stock Exchange of Tunis over the period 2000-2011. The results show that transparency has no effect on Tunisian banks' risk-taking. Similarly, the results indicate that the capital adequacy ratio has no effect on the non-performing loans rate. These results may undermine the effectiveness of the guidelines of the Basel Committee agreements to reduce risk-taking by Tunisian banks.

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The Relationship Between Bank Capital Adequacy and Market Measures of Risk

Cited by 24 publications

References 13 publications

Bank capital, profitability and risk in BRICS banking industry

Bank capital, profitability and risk in BRICS banking industry

Do Human Capital and Cost Efficiency Affect Risk and Capital of Commercial Banks? An Empirical Study of a Developing Country

Bank Transparency and Risk Taking: Empirical Evidence from Tunisia

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