Empirical analysis of Brazilian banks' capital buffers during the period 2001-2011

Abstract

International literature indicates that the capital buffers held by banks result notably from the trade-off that exists between the cost of holding capital, adjustment costs, and bankruptcy costs, which all have a direct impact on banks' capital structures. The aim of this paper is to study the degree of sensitivity of Brazilian banks' capital buffers to the determining factors established in the literature, by using a sample of 121 banks, covering the period from 2001 to 2011. The empirical analysis that was carried out found that there was a significant cost of adjusting capital buffers for the Brazilian banks. At the same time, bankruptcy cost indicated a positive relationship between risk profile and capital buffers, while the cost of holding capital did not exhibit statistical significance in the analysis.

Capital Buffer and Determinant Factors of Conventional Banks in Indonesia

“…Bank profitability affects the capital buffer because the higher the bank's profit, the more it provides an opportunity to increase the capital buffer, because part of the profit earned will be set aside as retained earnings and will be accumulated in its own capital, thereby increasing the capital buffer. Like the findings of Belém and Gartner (2016) in Brazil and Haryanto and Indonesia (2015) in Indonesia, profitability affects the capital buffer. However, the findings of Noreen et al (2016) found a significant and negative effect between profitability as measured by ROA on capital buffer.…”

“…Thus, the high profit will increase the capital buffer. In Brazil, the results of research between profitability and capital buffer shows a positive and significant effect (Belém & Gartner, 2016). Haryanto (2015) and Masood et al (2013), who conducted a study in Indonesia, also found the same thing.…”

“…The results of research by Sutrisno (2018) show that in China LDR has a positive effect on capital buffer. Likewise, Belém and Gartner (2016) also found a significant effect between LDR and capital buffer. Meanwhile, Mili et al (2017) and Haryanto (2015) found an insignificant effect on LDR and capital buffer.…”

“…The results of research by Jiang et al (2020) in America and Noreen et al (2016) in Indonesia found that the effect of the previous CAR with a capital buffer had a positive effect. Meanwhile, the research results of Belém and Gartner (2016) found a negative effect between CAR t-1 on capital buffer. Meanwhile, Suputra (2013) found insignificant effects.…”

Reserve Capital buffer as an Instrument of Macroprudential Policy

“…Belem and Gartner [10] conducted similar studies for the Brazilian banks. They investigated the relationship between bankruptcy cost and a large number of factors.…”