How Do Capital Ratios Affect Bank Risk-Taking: New Evidence From the United States

Abbas, Faisal; Masood, Omar; Ali, Shoaib; Rizwan, Sohail

doi:10.1177/2158244020979678

Cited by 26 publications

(19 citation statements)

References 53 publications

(120 reference statements)

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“…A similar observation has also been documented in the case of Southeast Asian banks by Toh and Zhang (2021). These findings are also related to that of Abbas et al (2021), who concluded that a bank's capital ratio is negatively correlated with non-performing loan and loan loss provision as the proxies of risk.…”

Section: Literature Review and Hypothesessupporting

confidence: 72%

“…The COVID_ DUMMY coefficient in column (1) shows significantly that banking institutions in ASEAN-5 countries reduced their loan growth by 3.58% during the COVID-19 crisis relative to the non-COVID period. Considering that during the study time frame there was a loan growth of 0.8% quarter-on-quarter across the sample, this result illustrates the negative effect of the COVID-19 crisis on bank credit supply.…”

Section: Regression Resultsmentioning

confidence: 99%

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The impact of COVID-19 and bank capital ratio on loan changes of ASEAN-5’s banking industry

Hukom¹,

Lubis

2023

Banks and Bank Systems

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The COVID-19 pandemic has affected economies around the world, including the banking industry, and this depends on various factors. The aim of this study is to understand the influence of COVID-19 independently and through the moderation of bank capital ratios on changes in loans of Association of Southeast Asian Nations 5 (ASEAN-5) banking industry players. The study uses a sample of 86 banking companies listed on the stock markets of Indonesia, Malaysia, the Philippines, Singapore, and Thailand from the first quarter of 2018 to the fourth quarter of 2020 by employing the panel data regression technique. The results showed that COVID-19 had a significant negative effect on changes in bank lending. However, a bank’s capital ratio was not found to play a role in moderating the effect of COVID-19 on changes in bank lending. These findings have three main implications: (i) the role of the government in recapitalization and liquidity injection can eliminate differences in behavior between banks with the classification of capital ratios; (ii) there are no signs of zombie lending in ASEAN-5’s banking industry; and (iii) regulating incentives to change bank lending behavior in future crises must take into account that bank capital categorization will not be effective. AcknowledgmentThis study was made possible with the support of a research grant by Universitas Indonesia number NKB-533/UN2.RST/HKP.05.00/2022.

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Section: Literature Review and Hypothesessupporting

confidence: 72%

Section: Regression Resultsmentioning

confidence: 99%

The impact of COVID-19 and bank capital ratio on loan changes of ASEAN-5’s banking industry

Hukom¹,

Lubis

2023

Banks and Bank Systems

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“…Those studies do not explore in detail the direction of causation. Moral hazard behavior is found in various studies [8,13,[19][20][21].…”

Section: Literature Reviewmentioning

confidence: 96%

Causal Relationship Among Bank Capitalization, Efficiency, and Risk-Taking in ASEAN Commercial Banks

Anh¹

2024

Business, Management and Economics

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Purpose – This chapter explores the answer to the question of whether bank capital is sufficient to absorb risk while maintaining efficiency in ASEAN countries, a new emerging part of the globalized banking system. Design/methodology – This chapter focuses on three objectives: first, to investigate the contemporaneous interactions of capital, risk, efficiency; second, to determine directional Granger causality of the relationship; third, to adopt a new panel vector autoregression to track the explanatory power of causation through the impulse-response functions and variance decompositions. Results – This chapter contributes to literature through providing evidence on the causality of bank capital on cost efficiency and bidirectional causal interactions of bank capital and risk. Better capitalization induces the improvement in efficiency in ASEAN commercial banks even with different ownership, size, and across pre- and postcrisis period. Contribution – This chapter is perhaps the only study so far to investigate the dynamic causality among capital, risk, and efficiency taking into account the sensitivity of the interactions to influential factors of ownership, size, and crisis in ASEAN region—an emerging player in the global banking system.

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“…Agro-production is the main driver of ED across the continent, while DC and FDI have an impact on both, but specially they influence significantly ED (Gollin, 2020; Suri & Udry, 2022). Moreover, FD, FDI, and ED naturally affect bank risk proxies –via NPLs and LLRs (F. Abbas et al, 2021; Ding & Sickles, 2019), and bank returns –via ROA and ROE (Joaqui-Barandica et al, 2022).…”

Section: Literature Reviewmentioning

confidence: 99%

The Effects of the Interactions Between Agro-Production, Economic, and Financial Development on Bank Sustainability

Zheng

Jean-Petit

2023

SAGE Open

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The Sub-Saharan African region encounters a deficiency in agricultural financing, which can be attributed to its constraints in accessing international investments in general and the low engagement of bank risk-taking in particular. This situation leads to underproduction, which exacerbates poverty and malnutrition in the region. Thus, this study investigates the impact of the interaction effects between agricultural production, economic development (ED), and financial development (FD via FDI and DC) on bank stability ratios across 40 countries, encompassing 350 operational banks, during the period covering 2010 to 2019. The research employs the Generalized Method of Moments (GMM) technique and verifies its consistency with Two-Stage Least Squares (2SLS) and the Z-Score Approach. The results highlight two findings: first, the interaction effects between economic development, agricultural production, and financial development factors have significantly greater impacts on bank sustainability than their individual effects without interactions. Secondly, these interaction effects sustain significantly bank stability in two ways: on the one hand, they increase bank returns (through both ROE and ROA), while on the other hand, they reduce bank riskiness (via negative effects on NPL and positive effects on LLR). The study concludes that those interaction effects significantly sustain the stability of the African banking system. The SS African states (via their central banks) should promote farming finance services and enforce a minimum ratio of farming loans for each commercial bank’s credit portfolio as a solution to the investment deficiency in the sector. Hence, this can solve food production level issues, ensure food security, and effectively sustain both the banking system and real economic development.

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How Do Capital Ratios Affect Bank Risk-Taking: New Evidence From the United States

Cited by 26 publications

References 53 publications

The impact of COVID-19 and bank capital ratio on loan changes of ASEAN-5’s banking industry

The impact of COVID-19 and bank capital ratio on loan changes of ASEAN-5’s banking industry

Causal Relationship Among Bank Capitalization, Efficiency, and Risk-Taking in ASEAN Commercial Banks

The Effects of the Interactions Between Agro-Production, Economic, and Financial Development on Bank Sustainability

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