Bank capital and risk in the South Eastern European region

Panayiotis Athanasoglou ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the simultaneous relationship between bank capital and risk. A model is set up which assumes that banks’ decisions regarding capital and risk are made endogenously in a dynamic pattern. A simultaneous equation system was estimated using an unbalanced panel of SEE banks from 2001 to 2009. A key result for the whole sample of banks is the relationship between regulatory (equity) capital and risk which is positive (negative). However, a positive two-way relationship between regulatory capital and risk was found only in less than-adequately capitalized banks, which also increased substantially their risk in 2009. Thus, banks’ decisions differentiate between equity capital and risk and regulatory capital and risk. A positive, significant and robust effect of liquidity on capital was identified. Both regulatory and equity capital exhibit procyclical behaviour, whilst the relationship between risk and rate of growth of GDP is ambitious.

Keywords: Banking; capital; risk; liquidity; regulation; panel estimation (search for similar items in EconPapers)
JEL-codes: C33 G21 G32 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-ban, nep-reg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Bank capital and risk in the South Eastern European region (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:32002

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