Risk, capital and financial crisis: Evidence for GCC banks

Saibal Ghosh

Borsa Istanbul Review, 2014, vol. 14, issue 3, 145-157

Abstract: Employing data on over 100 GCC banks for 1996e2011, we test the relation between risk and capital. Given the interlinkage between these two variables, the model employs a 3SLS estimation that takes on board this simultaneity. Consistent with the literature, risk is measured by the Z-score, while capital is computed as the ratio of equity to asset. The findings indicate that banks generally increase capital in response to an increase in risk, and not vice versa. Second, there is an uneven impact of regulatory pressure and market discipline on banks attitude toward risk and capital. Additionally, Islamic banks increased their capital as compared to conventional banks. Besides, the evidence testifies to the fact that banks with higher dependence on wholesale funds and less diversified income profile have higher risk.

Keywords: Z-score; Capital; 2SLS; Banking; GCC (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:bor:bistre:v:14:y:2014:i:3:p:145-157

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