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Bank capital, institutional environment and systemic stability

Deniz Anginer, Asli Demirguc-Kunt and Davide Salvatore Mare ()

Journal of Financial Stability, 2018, vol. 37, issue C, 97-106

Abstract: Using data on publicly traded banks in 61 countries, we examine how the institutional environment affects the relationship between bank capital and system-wide fragility. Consistent with prior studies, we find that bank capital is associated with a reduction in the systemic risk contribution of individual banks. This effect is more pronounced for banks located in countries with less efficient public and private monitoring of financial institutions and in countries with lower levels of information availability. Overall, our findings suggest that capital can act as a substitute for a weak institutional environment in reducing systemic risk.

Keywords: Systemic risk; Bank capital; Basel capital requirements; Distance to default; Bank regulation and supervision (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.jfs.2018.06.001

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Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman

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