Risk Dynamics in Iraqi Banking Sector: Role of Bank Capital and Efficiency

This paper examines the role of bank capital in decision-making by bank holding companies (BHCs) in the United States. Following Chami and Cosimano’s (2001) call option approach to bank capital, BHCs optimally choose the amount of capital to insure the bank against becoming capital constrained in the future. We provide empirical support for this model, and find that a higher optimal level of capital leads to higher loan rates. Furthermore, higher loan rates result in lower amounts of lending. Thus, an increase in capital requirements is likely to lead to higher loan rates and a significant reduction in lending. JEL Classification Numbers:E5, G2

The role of bank capital in the propagation of shocks

Traditional monetary theory has largely ignored the role of bank capital. The \'bank lending channel\' thesis maintains that monetary policy actions can also alter the supply of bank loans by changing bank reserves. However, financial regulations on bank capital along with other interventions should be considered to fill the gap between traditional monetary theory and bank lending channel.Therefore, the paper analyzes the different responses of the capital-asset ratio and growth rate of loan of banks, classified in three categories, in the commercial banking group to selected macroeconomic variables such as exchange, interest, and public sector domestic debt stock. Based on the some empirical evidences and the results of the impulse response function, for 1992.04-2005.03, the paper has several implications. First, bank capital channel that explains a link between capital and loans structure is that monetary policy actions can affect the supply of bank loans through their impact on bank capital. Second, the strength of this channel depends on the capital adequacy ratio of banks in each category. In particular, lending by banks with different level of capital adequacy ratios will have different reactions to shocks to the variables.

Purpose Cambodia’s banking sector has grown into an important part of the economy over the past 15 years, with growth in total assets, deposits, credit, capital and profitability. The sector’s 55 % profitability decline and 230bps NPL spike in 2023 indicate its challenges, despite its strong metrics. This study aims to investigate the influence of credit risk, liquidity risk and bank capital on the profitability of Cambodian commercial banks. Design/methodology/approach This study uses econometric panel data analysis and the generalized method of moments to explore the impact of bank capital, liquidity and credit risks on the profitability of Cambodian commercial banks from 2016 to 2023. Findings The authors find that return on average assets (ROAA) is increased by bank capital while using the net interest margin (NIM) does not show a significant influence. In addition, liquidity risk has an asymmetric effect, positively correlated with ROAA and negatively correlated with NIM. The impact of liquidity risk on Cambodia’s banking system seems to be influenced by profitability indicators. ROAA and NIM are hardly influenced by credit risk. Operational efficiency and bank size reduce profitability. To boost profits, bank management should emphasize capital buffers. Banks must balance liquidity management: higher liquidity prevents insolvency but lowers profitability, as NIM shows. Practical implications Policymakers should enforce capital adequacy standards and guide liquidity optimization without sacrificing profit. While highlighting the impact of liquidity and capital on profitability in frontier markets – an under-researched area – future research could explore these dynamics in other emerging markets. Originality/value To the best of the authors’ knowledge, this attempt is likely the first of its kind to delve into the dynamics driving banking profitability in a frontier banking market, such as Cambodia.

This paper demonstrates that low bank capital carries a negative externality because it amplifies local shock spillovers. We exploit a natural disaster that is transmitted to firms in non-disaster areas via their banks. Firms connected to a strongly disaster-exposed bank with lowest-quartile capitalization significantly reduce their total borrowing by 6.6% and tangible assets by 6.9% compared to similar firms connected to a well-capitalized bank. These findings translate to negative regional effects on GDP and unemployment. Additionally, following a disaster event, banks reduce their exposure to currently unaffected but generally disaster-prone areas.

This article demonstrates that low bank capital carries a negative externality because it amplifies local shock spillovers. We exploit a natural disaster that is transmitted to firms in nondisaster areas via their banks. Firms connected to a strongly disaster-exposed bank with lowest-quartile capitalization significantly reduce their total borrowing by 6.6% and tangible assets by 6.9% compared to similar firms connected to a well-capitalized bank. These findings translate to negative regional effects on GDP and unemployment. Additionally, following a disaster event, banks reduce their exposure to currently unaffected but generally disaster-prone areas.

The transmission mechanism of credit support policies in the euro area

The role of bank capital on the bank lending channel of monetary policy transmission: An application of marginal analysis approach

This note explores how a bank’s balance sheet responds to a capital shock in a simple model of the banking firm where both loan demand and deposits are sensitive to a bank’s capital position relative to its competitors. An unconstrained bank shrinks its deposit base in the wake of a capital loss if loan demand is very sensitive to the bank’s relative capital position. The deposits of an unconstrained bank expand only if both deposit and loan demands are fairly immune to a bank’s relative capital position. In a simple model with reserves we show that in the wake of a capital loss the adjustment of loans and reserves under a binding constraint depends on the parameters of the model while the adjustment of total assets and liabilities does not. Loans decrease by the size of the capital loss plus the increase in reserves. If the constraint is not binding then loans generally decrease by more than the increase in reserves. Keywords: deposits, loans, reserves, capital-asset ratio, balance sheet JEL Code: E51, G2

The Role of Bank Capital in the Propagation of Shocks in Iran: A Dynamic Stochastic General Equilibrium Approach

Bank interconnectedness and financial stability: The role of bank capital

The Role of Bank Capital in Bank Holding Companies’ Decisions

In the article, the resource base of private banks, their size and dynamics, the role and structure of capital in the composition of the resource base are analyzed and given corresponding conclusions. In addition, the article examines the researches of foreign and domestic scientists in showing the role of capital in strengthening the resource base of private banks, and the advantages of strengthening the resource base are researched. In particular, as a result of studying the scientific opinions of researchers, a number of shortcomings and problems in strengthening the resource base were identified. Also, the role of bank capital in strengthening their resource base was studied. Conclusions and practical recommendations were formed based on the conducted research.

The Transmission Mechanism of Credit Support Policies in the Euro Area

Quality of Bank Capital and Credit Growth in the Global Financial Crisis