Quantifying and explaining parameter heterogeneity in the capital regulation-bank risk nexus

Delis, Manthos D. and Tran, Kien C. and Tsionas, Michael (2012) Quantifying and explaining parameter heterogeneity in the capital regulation-bank risk nexus. Journal of Financial Stability, 8 (2). pp. 57-68. ISSN 1572-3089

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Abstract

By examining the impact of capital regulation on bank risk-taking using a local estimation technique, this paper attempts to quantify for the first time the heterogeneous response of banks towards this type of regulation in banking sectors of western-type economies. Subsequently, using this information, we examine the sources of heterogeneity. The findings suggest that the impact of capital regulation on bank risk is very heterogeneous across banks and the sources of this heterogeneity can be traced into both bank and industry characteristics, as well as into macroeconomic conditions. An important implication of the findings is that common capital regulatory umbrellas are not sufficient to promote financial stability, especially if they are not accompanied by supervisory effectiveness. On the basis of our findings, we contend that more focus should be placed on the actions needed to restrain excessive risk-taking of banks.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Financial Stability
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000
Subjects:
ID Code:
65230
Deposited By:
Deposited On:
17 Jun 2013 12:10
Refereed?:
Yes
Published?:
Published
Last Modified:
20 Oct 2020 02:33