Capital requirements, the cost of financial intermediation and bank risk-taking: Empirical evidence from Bangladesh

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

“…Table 1 summarizes the variables employed in this study. (Zheng et al 2017b) Firm performance PER Equals the ratio of pre-tax profit over total assets (Zheng et al 2017a) Leverage LEV Equals total debt over total assets of each bank (Rahman et al 2017) …”

Capital Adequacy Requirement, The Cost of Financial Intermediation and Risk Taking Behavior of The Indonesia Banking Sector

“…Naceur and Kandil state that higher capital requirement increases the cost of intermediation in the Egyptian banking industry to support higher return on equity and return on assets because capital requirement internalizes the risk for shareholders, which indicate that high capitalized banks face a lower bank risk in accordance with the lower cost of funding [9]. In line with this result are [2], Miles et al (2013) and [10] who suggest that equity is an expensive source of financing compared to deposit and debt, and an increase in capital regulation would enhance the weighted cost of capital. Baker & Wurgler in Rahman et al [2] [3] argues that a large share of equity will decrease bank risk-taking, then ultimately lower the return on equity (ROE).…”

“…In line with this result are [2], Miles et al (2013) and [10] who suggest that equity is an expensive source of financing compared to deposit and debt, and an increase in capital regulation would enhance the weighted cost of capital. Baker & Wurgler in Rahman et al [2] [3] argues that a large share of equity will decrease bank risk-taking, then ultimately lower the return on equity (ROE). In addition, Zarruk and Madura [12], as well as Saunders and Schumacher (2000) [13], state that an increase in the capital adequacy ratio will decrease net interest margin if there is no increase in risk aversion level.…”

“…The macroeconomic variable used is GDP or economic growth proxied by the ratio of gross domestic product (GDP). The intuition of this variable is that when the economic condition of good growth is high, it is expected the financial intermediation cost becomes low because of low risk (Demirguc Kunt & Huizinga, 1999, Tarus et al, 2012 in [2]).…”

“…Angelini et al state that capital regulations have negative consequences in the form of high financial intermediation costs and capital regulation do not always reduce risk [1]. Rahman et al, find that capital regulation has a positive relationship with the cost of financial intermediation but has a negative relationship with bank risk-taking behavior; banks increase financial intermediation cost in order to make up that higher capital adequacy ratio, but capital regulation has demotivated the banks to take excessive risk [2].…”