EconPapers    
Economics at your fingertips  
 

Estimating the impact of higher capital requirements on the cost of equity: an empirical study of European banks

Oana Toader ()

International Economics and Economic Policy, 2015, vol. 12, issue 3, 436 pages

Abstract: The new regulatory framework imposes an increase in capital requirements for banks. Although core capital (equity) is more expensive than other liabilities (debt), it strengthens banks’ stability and improves its loss-absorbing capacity. In this paper, we investigate the link between high-quality capital requirements and systematic risk. We further analyze the extent to which an improvement in the quality of the banks’ balance-sheet will affect the expected return on equity. We show the impact of shifts in funding structure on information asymmetries (especially implicit guarantees) and on the average funding cost. Our results demonstrate that core capital is essential for increasing banks stability and for reducing the average funding cost for banks. Our empirical analysis provides support for the introduction of strengthened prudential requirements defined in Basel III. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Modigliani-Miller; Banks; Leverage; Regulation; Beta; G3; G21; G28 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1007/s10368-014-0303-x (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:iecepo:v:12:y:2015:i:3:p:411-436

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10368/PS2

DOI: 10.1007/s10368-014-0303-x

Access Statistics for this article

International Economics and Economic Policy is currently edited by Paul J.J. Welfens, Holger C. Wolf, Christian Pierdzioch and Christian Richter

More articles in International Economics and Economic Policy from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2021-04-27
Handle: RePEc:kap:iecepo:v:12:y:2015:i:3:p:411-436