The Risk-sensitivity of Bank Capital Requirements: The Moderating Effects of Capital Regulation and Supervisory Power
This study examines the moderating effects of capital regulation and supervisory power on the risk-sensitivity of bank capital requirements. Using two-step system GMM estimator, we work on the international sample of 222 banks charted in 30 countries. The finding suggests that asset volatility is a...
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| Format: | Article |
| Language: | English |
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EconJournals
2017-04-01
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| Series: | International Journal of Economics and Financial Issues |
| Online Access: | http://mail.econjournals.com/index.php/ijefi/article/view/4039 |
| _version_ | 1797920885466726400 |
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| author | Mohamed Albaity Mohammadmahdi Toobaee |
| author_facet | Mohamed Albaity Mohammadmahdi Toobaee |
| author_sort | Mohamed Albaity |
| collection | DOAJ |
| description |
This study examines the moderating effects of capital regulation and supervisory power on the risk-sensitivity of bank capital requirements. Using two-step system GMM estimator, we work on the international sample of 222 banks charted in 30 countries. The finding suggests that asset volatility is a critical variable in explaining the risk-sensitivity of banks. The results indicate that stricter capital regulatory regimes and higher supervisory power enhance the risk sensitivity of capital requirements. Moreover, the capital regulation was found to moderate the relationship between asset volatility and risk-sensitivity while supervisory power was found not to exert any impact on the level of risk of the banks. Another interesting result is that governments with a higher debt to GDP ratio tend to overregulate the other banks' investments compared to government bonds. This is the first study that investigates the moderating effects of capital regulation and power of supervision on the risk sensitivity of capital requirements. The results of this study show that the efficiency of risk-based capital requirements depends on the stringency of capital regulation in different countries.
Keywords: bank capital requirements, risk-weighted assets, capital regulation, supervisory power, system GMM, government debt to GDP.
JEL Classifications: G21, G34, G33, G28
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| first_indexed | 2024-04-10T14:09:12Z |
| format | Article |
| id | doaj.art-ca93c9dde3cc4ea2b14fe5f2add850f4 |
| institution | Directory Open Access Journal |
| issn | 2146-4138 |
| language | English |
| last_indexed | 2024-04-10T14:09:12Z |
| publishDate | 2017-04-01 |
| publisher | EconJournals |
| record_format | Article |
| series | International Journal of Economics and Financial Issues |
| spelling | doaj.art-ca93c9dde3cc4ea2b14fe5f2add850f42023-02-15T16:09:52ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382017-04-0172The Risk-sensitivity of Bank Capital Requirements: The Moderating Effects of Capital Regulation and Supervisory PowerMohamed Albaity0Mohammadmahdi Toobaee1Assistant professor Department of Finance and Economics, College of business administration University of Sharjah, Sharjah, 27272, UAE malbaity@sharjah.ac.aeDepartment of banking and finance Faculty of business and accountancy University of Malaya Kuala Lumpur 50603 Malaysia This study examines the moderating effects of capital regulation and supervisory power on the risk-sensitivity of bank capital requirements. Using two-step system GMM estimator, we work on the international sample of 222 banks charted in 30 countries. The finding suggests that asset volatility is a critical variable in explaining the risk-sensitivity of banks. The results indicate that stricter capital regulatory regimes and higher supervisory power enhance the risk sensitivity of capital requirements. Moreover, the capital regulation was found to moderate the relationship between asset volatility and risk-sensitivity while supervisory power was found not to exert any impact on the level of risk of the banks. Another interesting result is that governments with a higher debt to GDP ratio tend to overregulate the other banks' investments compared to government bonds. This is the first study that investigates the moderating effects of capital regulation and power of supervision on the risk sensitivity of capital requirements. The results of this study show that the efficiency of risk-based capital requirements depends on the stringency of capital regulation in different countries. Keywords: bank capital requirements, risk-weighted assets, capital regulation, supervisory power, system GMM, government debt to GDP. JEL Classifications: G21, G34, G33, G28 http://mail.econjournals.com/index.php/ijefi/article/view/4039 |
| spellingShingle | Mohamed Albaity Mohammadmahdi Toobaee The Risk-sensitivity of Bank Capital Requirements: The Moderating Effects of Capital Regulation and Supervisory Power International Journal of Economics and Financial Issues |
| title | The Risk-sensitivity of Bank Capital Requirements: The Moderating Effects of Capital Regulation and Supervisory Power |
| title_full | The Risk-sensitivity of Bank Capital Requirements: The Moderating Effects of Capital Regulation and Supervisory Power |
| title_fullStr | The Risk-sensitivity of Bank Capital Requirements: The Moderating Effects of Capital Regulation and Supervisory Power |
| title_full_unstemmed | The Risk-sensitivity of Bank Capital Requirements: The Moderating Effects of Capital Regulation and Supervisory Power |
| title_short | The Risk-sensitivity of Bank Capital Requirements: The Moderating Effects of Capital Regulation and Supervisory Power |
| title_sort | risk sensitivity of bank capital requirements the moderating effects of capital regulation and supervisory power |
| url | http://mail.econjournals.com/index.php/ijefi/article/view/4039 |
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