Optimal capital, regulatory requirements and bank performance in times of crisis: Evidence from France

Olivier de Bandt, Boubacar Camara, Alexis Maitre and Pierre Pessarossi

Journal of Financial Stability, 2018, vol. 39, issue C, 175-186

Abstract: The recent implementation of the Basel III framework has re-ignited the debate around the link between actual capital levels, performance and capital requirements in the banking sector. There is a dominant view in the earlier empirical literature in favor of a positive effect of capital on performance. Using panel data gathered by the French supervisor, we also find evidence of this beneficial effect of capital, but try to go one step further by distinguishing between regulatory and voluntary capital. Using a two-step estimation procedure, and controlling for many factors (risk, asset composition, etc.), we show that voluntary capital, i.e. capital held by banks irrespective of their regulatory requirements, turns out to be the sole component of capital that affects performance positively. In contrast, the effect of regulatory capital on profitability appears to be insignificant, indicating that so far the increase in capital requirements has not been detrimental to bank profitability in France.

Keywords: Bank capital; Performance; ROA; Capital requirements; Financial crisis (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 G32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Optimal capital, regulatory requirements and bank performance in times of crisis: Evidence from France (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:39:y:2018:i:c:p:175-186

DOI: 10.1016/j.jfs.2017.03.002

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