Statistical analysis of the use an internal capital adequacy assessment procedure in the monitoring of banks stability

Abstract

To increase the stability of the banking system, it is necessary to use effective systems of risk management and monitoring of banks. One of these systems is the internal procedure for capital adequacy assessment (IPCAA). The purpose of this study is to assess, using a statistical analysis, the impact of the IPCAA procedure on changes in the value of banks’ capital adequacy ratios. Some results of monitoring data are presented on risk-weighted assets, level 1 and 2 capitals, and capital adequacy ratios (CAR) for two foreign (2008 - 2018) and three Russian banks (2014 - 2018). The study showed the direct effect of increasing the risk-weighted assets on the level of capital adequacy (CAR). The results obtained allow concluding that there is a direct significant connection between the IPCAA procedure use and the stability of banks. This procedure provides a comprehensive assessment of the overall capital adequacy of banks, taking into account the existing risks in order to maintain an adequate and stable forecast level of capital. The study also revealed the needs of banks in creating adequate structures to ensure proper management of financial and operational risks, which will simplify the IPCAA process and ensure more effective capital planning and decision-making to provide the stability of both individual banks and the entire banking system.