Abstract
The purpose of this study is to find the most important variables that represent the future projections of the Bank of International Settlements’ (BIS) capital adequacy ratio, which is the index of financial soundness in a bank as a comprehensive and important measure of capital adequacy. This study analyzed the past 12 years of data from all domestic banks in South Korea. The research data include all financial information, such as key operating indicators, major business activities, and general information of the financial supervisory service of South Korea from 2008 to 2019. In this study, machine learning techniques, Random Forest Boruta algorithms, Random Forest Recursive Feature Elimination, and Bayesian Regularization Neural Networks (BRNN) were utilized. Among 1929 variables, this study found 38 most important variables for representing the BIS capital adequacy ratio. An additional comparison was executed to confirm the statistical validity of future prediction performance between BRNN and ordinary least squares (OLS) models. BRNN predicted the BIS capital adequacy ratio more robustly and accurately than the OLS models. We believe our findings would appeal to the readership of your journal such as the policymakers, managers and practitioners in the bank-related fields because this study highlights the key findings from the data-driven approaches using machine learning techniques.
Highlights
Published: 1 February 2021The Bank for International Settlements’ (BIS) capital adequacy ratio is an internationally accepted key indicator for measuring a bank’s capital adequacy, which is defined and suggested by the BIS regardless of local financial, regulatory systems, policies, and laws (Bank for International Settlements 2020)
We believe our findings would appeal to the readership of your journal such as the policymakers, managers and practitioners in the bank-related fields because this study highlights the key findings from the data-driven approaches using machine learning techniques
478 variables were selected as significant predictors of the BIS capital adequacy ratio
Summary
Published: 1 February 2021The Bank for International Settlements’ (BIS) capital adequacy ratio is an internationally accepted key indicator for measuring a bank’s capital adequacy, which is defined and suggested by the BIS regardless of local financial, regulatory systems, policies, and laws (Bank for International Settlements 2020). BIS is an international financial institution that is owned by 63 central banks over countries (Bank for International Settlements 2020). BIS has been established in 1930 and have these missions 2020): (a) collaborating with participating central banks; (b) promoting financial stability;. BIS is made for stabilizing the international finances as international efforts by participating central banks. The BIS capital adequacy ratio represents prudent finance regulation indexes for monitoring domestic banks’ capital levels and raised capital It is an important macro index against systemic risks because banks have the most important position in the financial system, and it control the highest percentage of payment systems
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