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The effects of capital buffers on profitability: An empirical study

Benjamin Tabak (), Dimas Fazio, Regis Ely (), Joao Amaral () and Daniel Cajueiro
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Joao Amaral: Universidade de Brasilia

Economics Bulletin, 2017, vol. 37, issue 3, 1468-1473

Abstract: This paper measures the effect of capital buffers and other determinants on banks' profitability in 51 countries during the period of 2000 to 2012. We have found a nonlinear relationship between return on assets and capital buffers. While capital buffers have a positive impact on profitability, its excess can diminish banks' profits. Countries with non-competitive markets do not seem to change this relationship, although higher market power enhances profits. We also examine other determinants of profitability. Since minimal requirements of equity capital are one of the main regulatory instruments for preventing financial risks, we hope that the results of this letter can help financial authorities to also understand the effects of capital buffers on profits.

Keywords: capital buffer; profitability; banking regulation. (search for similar items in EconPapers)
JEL-codes: G2 G1 (search for similar items in EconPapers)
Date: 2017-07-02
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