Coordination of capital buffer and risk profile under supervision of Central Bank

Joao Andre Marques Pereira () and Richard Saito ()
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Joao Andre Marques Pereira: Banco Central do Brasil
Richard Saito: Escola de Administração de Empresas de São Paulo, Fundação Getúlio Vargas

Brazilian Review of Finance, 2015, vol. 13, issue 1, 74-101

Abstract: This work investigates how banks react to the capital constraints imposed by the Central Bank. Using models that incorporate the simultaneity of capital decisions and risk decisions, our findings confirm the capital buffer theory, which predicts that adjustments to capital and adjustments to risk are positively related. Moreover, we find that regulatory pressures induce banks to increase their risk levels in response to capital adjustments but not vice versa.

Keywords: capital regulation; prudential regulation; capital regulation; prudential regulation (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:13:y:2015:i:1:p:74-101

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