 The nexus between loan portfolio size and volatility: Does bank capital regulation matter?Franziska Bremus and Melina Ludolph Journal of Banking & Finance, 2021, vol. 127, issue C Abstract: This paper analyzes the effects of bank capital regulation on the link between bank size and volatility. Using bank-level data for 27 advanced economies over the 2000–2014 period, we estimate a power law that relates the volume of a bank’s loan portfolio to the volatility of loan growth. Our analysis reveals, first, that more stringent capital regulation weakens the size-volatility nexus. Hence, in countries with more stringent capital regulation, large banks show, ceteris paribus, lower loan portfolio volatility. Second, the effect of tighter capital requirements on the size-volatility nexus becomes stronger for the upper tail of the bank size distribution. This is in line with capitalization decreasing with bank size, such that larger banks tend to be more affected by increasing capital requirements. Third, in countries with higher sectoral capital buffers, the size-volatility nexus is weaker. Keywords: Bank size; Capital regulation; Volatility; Power law (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:127:y:2021:i:c:s0378426621000807 DOI: 10.1016/j.jbankfin.2021.106122 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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