Bank Capital Regulation in Contemporary Banking Theory: A Review of the Literature (original) (raw)
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1999
The paper reviews the empirical evidence on the impact of the 1988 Basle Accord. It focuses on whether the adoption of fixed minimum capital requirements led some banks to maintain higher capital ratios than would otherwise have been the case and whether any increase in ratios was achieved by increasing capital or reducing lending. Moreover, it addresses whether fixed capital requirements have been successful in limiting risk-taking relative to capital as intended, or whether banks have been able to take actions to reduce their effectiveness, either by shifting to riskier assets within the same weighting band or through capital arbitrage. It looks at two possible side effects. Firstly, whether in some periods capital requirements may have had the effect of constraining bank lending thereby causing a credit crunch. Secondly, whether the introduction of fixed minimum requirements for banks affected their competitiveness relative to other forms of intermediation. * For this paper suppo...
Capital requirement and financial regulations in banking: Are they effective?
This article describes the role of capital and capital requirement in the banking industry. Using an accounting defi nition, bank capital refers to common stocks, surplus and undistributed profi ts. This capital, among other things, acts as a cushion or buffer to absorb unexpected losses. When these losses exceed this buffer amount, bank failure occurs. Since a single bank failure may prove contagious as observed in the 1997 Asian fi nancial crisis, bank capital position should not be allowed to erode. Because of this, regulators regulate the level of capital in the banking institutions. Hence, regulatory capital refers to the minimum amount of equity capital that banks must maintain to comply with regulatory requirements. Bank capital and default, however, are not always inversely related as proven in past studies. Accordingly, this article also explains why a stringent capital requirement does not necessary reduce the probability of bank failure. Like other forms of regulations, t...
Current Problems of Banking Supervision and Regulation: A New Evidence
European Research Studies Journal Volume XXI, Issue 4, 2018 pp. 40-54, 2018
At present, in the era of globalization, the banking sector failure in one country can cause negative externalities for the financial institutions of other states. The fundamental problem of implementing standards based on Basel II is that these standards contribute to the development of pro-cyclicality of banking regulation. The authors emphasize the need to design such a regulatory system, which should contribute to innovative development and at the same time restrain socially dubious novelties. Therefore, the article substantiates the need to increase the size of the capital "buffer", which is intended to address the problem of improving the financial situation and increasing the financial viability of the largest banks and banking systems. This reduces risks and increases the capital "safety cushion", as well as optimizes the impact on the commercial banks behavior caused by the use of counter-cyclical capital regulation requirements. The conducted research supported the hypothesis put forward by the authors that when forming a countercyclical capital buffer it is necessary to focus on indicators of: return on assets of the banking system (ROА) and return on equity (ROE), depending on GDP growth, but this dependence does not become evident immediately, but with a time lag of 1 year. The object of the research is the banking system of Russia.
A framework for managing the regulatory and economic capital of banks
Journal of Economic and Financial Sciences
Orientation: Banks face three primary risks, namely credit, market and operational risk. The Basel Committee on Bank Supervision (BCBS) promotes monetary and financial stability by means of their accords, which provides risk mitigation guidelines to banks under the jurisdiction of central banks that are members of the BCBS.Research purpose: The aim of this study was to develop a framework for participating African banks to enable them to determine their required regulatory capital (RC) and economic capital (EC) because neither the Basel accords nor the central banks involved in this study provided clear guidelines in this regard.Motivation for the study: During 2016, the banking associations from Kenya, Mauritius, Rwanda, Seychelles, South Sudan, Tanzania, Uganda and Ghana requested assistance with the determination of the EC and RC of their member banks.Research design, approach and method: The study used pragmatism as a paradigm and a qualitative methodology by using participatory...