Effect Of Bank Capital Research Articles

BANK CAPITAL AND BANK PROFITABILITY OF VIETNAM COMMERCIAL BANKS

The commercial banking system plays an important role in providing capital to businesses and other organizations, so bank capital receives great attention from many different subjects in the economy. This position is even more crucial for Vietnam, a developing country because the corporate bond market is relatively small in comparison to the size of the economy. As a result, commercial bank business efficiency is a problem that requires attention since it has a direct impact on the efficiency with which capital is provided to firms, as well as the market's stability. The research study concerning the effect of bank capital on bank profitability was conducted using data gathered from 22 Vietnam commercial banks from 2011 to 2020, using Pooled OLS, FEM, REM, and GMM methodologies. The results show that bank capital has a negative relationship with profitability. Bank profitability is also positively affected by bank size, credit risk, credit growth, and capital adequacy ratio. This study offers a new understanding of the relationship between bank capital, and bank profitability in Vietnam and proposed implications for Vietnam commercial banks' governance solutions, a country whose financial system depends mainly on banks, has transformed its capital management direction according to Basel 2 guidelines and is preparing for Basel 3 standards.

New evidence on liquidity creation and bank capital: The roles of liquidity and political risk

This research intends to investigate whether the “bank capital channel” does exist, by examining the relationship between bank capital and liquidity creation through 35 Asian countries over the period 2001–2018 and contributes to the literature in several respects. First, this study confirms the existence of the “bank capital channel” and solves the puzzle between the “risk absorption” hypothesis and the “financial fragility-crowding out” hypothesis. Our results reveal that strongly-capitalized banks retain more liquid assets, but do not lend more. Second, we explore the role of liquidity on the effects of bank capital and lending. Third, this study investigates whether the effect of bank capital on lending differs depending upon the role of political risk. Higher political risk leads to a higher level of uncertainty and results in a decrease of liquidity creation; only properly-capitalized banks are able to increase their liquidity creation. Our robustness tests also reveal that the “risk absorption” effect remains for commercial banks and large banks. However, cooperative banks have a greater positive effect on the banking capital channel probably due to differences in capital requirements. We also consider the effects of concentration and a financial crisis and find that liquidity creation drops under higher competition and during a crisis period. Lastly, we discuss policy implications.

Bank Capital and Loan Liquidity

We expand the bank liquidity creation concept from its current focus on bank portfolios to include providing liquidity to secondary markets for financial assets. We test opposing theories of the effects of bank capital on secondary market liquidity of syndicated loans. We find that higher bank capital significantly increases secondary market loan liquidity, consistent with risk absorption theory. The data also support the loan riskiness and bank balance sheet quality channels behind this theory. We use the exogenous capital shock from the 2012 JPMorgan Chase ‘London Whale’ incident to help establish causality. Our findings have important research and policy implications.

Why Capital’s Effect Differs in Bank Size?

Banks are trusted institutions. Therefore, bank management must use all of its operational tools to maintain the trust of the community. A strategic tool in sustaining that trust is adequate capital. Until now, banking activities remain the same, but with a different system. Novelty this research is a different effect of bank capital on lending behavior in each bank size category. This study used the fixed effect model in the 2004-2018 period. This study proved that smaller bank tends to implement aggressive strategies with lower capital and higher loan proportion, while larger bank manages to implement a defensive strategy with high capital and higher loan proportion.

Liquidity and capital in bank lending: Evidence from European banks

We examine whether the effect of bank capital on credit growth differs depending upon the level of liquidity in a panel of up to 521 banks from 21 European countries. We find that the effect of an increase in bank capital is positively associated with the level of bank liquidity, suggesting that capital exerts a significantly positive effect on European banks’ credit growth after they retain sufficient liquid funds.

Can Higher Capital Discipline Bank Risk: Evidence from a Meta-Analysis

Capital regulation has been among the most important tools for regulators to maintain the credibility and stability of the financial systems. However, the question whether higher capital induce banks to take lower risk remains unanswered. This paper examines the effect of capital on bank risk employing a meta-analysis approach, which considers a wide range of empirical papers from 1990 to 2018. We found that the negative effect of bank capital on bank risk, which implies the discipline role of bank capital, is more likely to be reported. However, the reported results are suffered from the publication bias due to the preference for significant estimates and favored results. Our study also shows that the differences in the previous studies’ conclusions are primarily caused by the differences in the study design, particularly the risk and capital measurements; the model specification such as the concern for the dynamic of bank risk behaviors, the endogeneity of the capital and unobserved time fixed effects; along with and the sample characteristics such as the sample size, and whether banks are bank holding companies or located in high-income countries.

Finance and Productivity: The Effect of Bank Capital on Total Factor Productivity of Korean Manufacturing Venture SMEs

Finance and Productivity: The Effect of Bank Capital on Total Factor Productivity of Korean Manufacturing Venture SMEs

The Risk Spiral - The Effects of Bank Capital and Diversification on Risk Taking

We present a model where bank assets are a portfolio of risky debt claims and analyze stockholders' risk-taking behavior while considering the strategic interaction between debtors and creditors. We find that: (1) as the leverage of a bank increases, risk shifting by borrowers increases, even if their leverage is unchanged (zombie lending). (2) While the literature demonstrates that an increase in comovement of a loan portfolio increases the bank's cost of default directly, we find that the increase prevails through a second channel: an increase in risk shifting. (3) Risk shifting decreases with the diversification of a loan portfolio.

The effect of bank capital on lending: Does liquidity matter?

This paper uses a sample of quarterly observations of insured US commercial banks to examine whether the effect of bank capital on lending differs depending upon the level of bank liquidity. We find that the effect of an increase in bank capital on credit growth, defined as growth rate of net loans and unused commitments, is positively associated with the level of bank liquidity only for large banks and that this positive relationship has been more substantial during the recent financial crisis period. This result suggests that bank capital exerts a significantly positive effect on lending only after large banks retain sufficient liquid assets.

Bank Capital and Profitability: A Study of Selected Banks in Ghana.

The research investigated the relationship between bank equity capital and bank profitability of fourteen (14) banks in Ghana, covering an eleven-year period (2005-2015). Bank capital, and capital structure theories provided the theoretical background for the study. The study sampled fourteen (14) banks, using the purposive sampling technique, out of the twenty-eight (28) universal banks operating in Ghana at the time, with data covering an eleven- year period (2005-2015). The study adopted the panel data methodology to examine the effect of bank capital on profitability of selected banks in Ghana. The random-effects Generalised Least Square (GLS) regression methodology was adopted as an estimation technique for the research. The study revealed that equity capital is significantly and positively related to Net Interest Margin (NIM), and Return-on-Equity (ROE). This result is in consonance with the pecking order theory where banks will resort to internal sources of financing first. However, it is at variance with conventional finance literature which suggests that adequately capitalised banks are a means of boosting economic growth and enhancing efficient financial intermediation. Bank size is significantly and negatively related to ROE, and insignificantly inversely related to NIM. Regulated bank capital is a disincentive to inclusive financial intermediation in Ghana and policies to enhance the positive impact of regulated capital on inclusive financial intermediation, to engender economic growth, should be encouraged

Effects of Bank Capital on Profitability and Credit Risk: The Case of Vietnam’s CommercialBanks

Effects of Bank Capital on Profitability and Credit Risk: The Case of Vietnam’s CommercialBanks

Do Financial Sector Structure and Development Matter for the Effect of Bank Capital on Lending in Large EU Banks?

The paper aims at finding out what is the impact of bank capital ratios on loansupply in the EU and what factors explain the potential diversity of this impact.Applying the Blundell and Bond (1998) two step GMM estimator, we find that in thefull sample of large banks the role of capital ratio on loan growth in contractionsis relatively weak. However, if we take into account the differences in financial sector structure and development between EU countries, we find that the effectof capital ratio on lending is positive and statistically significant. Therefore, ourresults suggest that capital ratios are an important determinant of lending in thelarge EU banks in those countries where financial sector is more dominated bystock markets of is better developed. Thus, our results provide support for theview that more financially developed economies are prone to greater procyclicalimpact of capital ratios on lending of banks.

If bank capital matters, then how? The effect of bank capital on profitability of Turkish banks during the recent financial crisis

The goal of this study is to examine if higher bank capital resulted in higher profitability of Turkish banks before and during the recent (2008–2009) financial crisis. Using the ordinary least squares, fixed effects and generalized method of moment estimator techniques, we find that higher bank capital had positive effects on bank profitability at all times, and the effect was more pronounced during the financial crisis.

The impact of credit and liquidity risk on bank financial performance: the case of Indonesian Conventional Bank with total asset above 10 trillion Rupiah

This paper examines the impact of credit and liquidity risk on bank’s financial performance. This study especially focuses on Indonesian Conventional Bank with total asset above 10 trillion Rupiah within 2007 to 2011. Bank financial performances are measured by return on asset, return on equity and net interest margin; credit risk are measured by non-performing loan ratio and liquidity risk are measured by liquidity ratio. Furthermore, this study also measured bank capital and bank size’s effect on bank financial performance. The results show that credit risk has negative significant effect on ROA and ROE. While liquidity ratio was found having positive significant effect on ROA and ROE. The effect of bank capital is positively significant on ROA, ROE, and NIM, while bank size was only found to have negative significant impact on NIM. Both credit risk and liquidity ratio was found to have insignificant impact on NIM.

The Effects of Bank Capital on Lending: What Do We Know, and What Does it Mean?

The effect of bank capital on lending is a critical determinant of the linkage between financial conditions and real activity, and has received especial attention in the recent financial crisis. We use panel-regression techniques--following Bernanke and Lown (1991) and Hancock and Wilcox (1993, 1994)--to study the lending of large bank holding companies (BHCs) and find small effects of capital on lending. We then consider the effect of capital ratios on lending using a variant of Lown and Morgan's (2006) VAR model, and again find modest effects of bank capital ratio changes on lending. These results are in marked contrast to estimates obtained using simple empirical relations between aggregate commercial-bank assets and leverage growth, which have recently been very influential in shaping forecasters' and policymakers' views regarding the effects of bank capital on loan growth. Our estimated models are then used to understand recent developments in bank lending and, in particular, to consider the role of TARP-related capital injections in affecting these developments.

The Effects of Bank Capital on Lending: What Do We Know, and What Does it Mean?

The effect of bank capital on lending is a critical determinant of the linkage between financial conditions and real activity, and has received especial attention in the recent financial crisis. We use panel-regression techniques—following Bernanke and Lown (1991) and Hancock and Wilcox (1993, 1994)—to study the lending of large bank holding companies (BHCs) and find small effects of capital on lending. We then consider the effect of capital ratios on lending using a variant of Lown and Morgan’s (2006) VAR model, and again find modest effects of bank capital ratio changes on lending. These results are in marked contrast to estimates obtained using simple empirical relations between aggregate commercial-bank assets and leverage growth, which have recently been very influential in shaping forecasters’ and policymakers’ views regarding the effects of bank capital on loan growth. Our estimated models are then used to understand recent developments in bank lending and, in particular, to consider the role of TARP-related capital injections in affecting these developments.

The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?

The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?

Taking Firms and Markets Seriously: A Study on Bank Behavior, Market Discipline, and Regulation

We argue that accounting for the behavior of firms and markets is important for understanding the extent and form and the effectiveness and efficiency of government regulation, particularly in economic policy. We examine the US banking sector and its regulation in the 1990s to gain insights on how studies along these lines could be constructed. We begin by observing that US bank capitalization exceeds governmental capital adequacy requirements by a substantial margin. This observation suggests that banks must also have reasons other than government intervention for selecting high levels of capital. We focus on the main alternative driving force to government regulation, market discipline, and in particular the effect of bank capital on banks' borrowing costs. We find that better capitalized banks have indeed experienced lower borrowing costs. But we also find that, while competitive pressure can help in mitigating the bank solvency problem, it cannot not fully counter free riding of unhealthy banks on a well-capitalized banking sector. These results show that recent US and international (Basel Accord) regulatory reform efforts, which are designed to increase transparency and enhance competition in the banking sector, can be interpreted as an effort to align market forces and regulation in ways that minimize the need for costly government enforcement or bailouts.

The Effects of Bank Capital on Bank Credit Creation

Dieser Artikel untersucht die quantitativen Auswirkungen von risiko-gewichtetem Bankeigenkapital auf das Wachstum von Bankenkrediten in Österreich. Die Untersuchungsperiode umfasst die Jahre 1996 bis 2000. Die panel-ökonometrische Analyse erfolgt auf der Grundlage von Jahresbilanzdaten von 750 österreichischen Universalbanken. Das Regressionsmodell berücksichtigt verschiedene angebotsund nachfrageseitige Einflussfaktoren, um die Wirkung von Bankeigenkapital auf das Kreditangebot von anderen Bestimmungsgrößen zu isolieren. Die analytischen Ergebnisse stützen die Hypothese, dass risikogewichtetes Eigenkapital einen (quantitativ geringen) negativen Einfluss auf das Kreditwachstum ausübt. Dieses Ergebnis ist im Einklang mit der „liquidity creation“-Theorie von Diamond/Rajan (2000, 2001).

A Theory of Bank Capital

Banks can create liquidity because their deposits are fragile and prone to runs. Increased uncertainty can make deposits excessively fragile in which case there is a role for outside bank capital. Greater bank capital reduces liquidity creation by the bank but enables the bank to survive more often and avoid distress. A more subtle effect is that banks with different amounts of capital extract different amounts of repayment from borrowers. The optimal bank capital structure trades off the effects of bank capital on liquidity creation, the expected costs of bank distress, and the ease of forcing borrower repayment. The model can account for phenomena such as the decline in average bank capital in the United States over the last two centuries, or the nature of disintermediation in liberalizing economies. Finally, it points to overlooked side-effects of policies such as regulatory capital requirements and deposit insurance.