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Bank-specific capital requirements and capital management from 1989-2013: Further evidence from the UK

Sebastian de-Ramon, William B. Francis and Qun Harris

Journal of Banking & Finance, 2022, vol. 138, issue C

Abstract: We examine how bank-specific capital requirements affect banks’ capital ratios and balance sheet composition over the period 1989-2013. We find that higher requirements, even when not binding in a regulatory sense, result in higher bank capital ratios, achieved by a combination of asset contraction, risk reduction and capital raising strategies. We find that after the 2007-09 financial crisis, banks place greater emphasis on raising capital, but that they continue to focus first on raising lower-quality capital. Our results have implications for evaluating the efficacy of bank-specific capital requirements as a policy tool to influence bank balance sheet behavior and resilience.

Keywords: Banking; Regulatory capital requirements; Bank capital ratios; Pillar 2 requirements (search for similar items in EconPapers)
JEL-codes: D21 G21 G28 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jbankfin.2021.106189

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