Regulation, bank capital, and bank risk: evidence from the Lebanese banking industry

Rim El-Khoury ()
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Rim El-Khoury: Notre Dame University, Louaize

Journal of Banking Regulation, 2020, vol. 21, issue 3, No 4, 255 pages

Abstract: Abstract This paper analyzes the relationship between change in capital and change in risk for a sample of 23 Lebanese banks between 2009 and 2014. Using the simultaneous equations model, our evidence reveals that banks determine their capital and risk levels simultaneously, with a negative relationship. While banks adjust their capital rapidly, they adjust their risk slowly. Furthermore, undercapitalized banks adjust their capital levels more rapidly than well-capitalized banks, and they increase their capital when they decrease their risk. However, there is no conclusive evidence regarding the role of regulatory pressure in driving risk-taking behavior. Finally, there are no major differences in the relationships between capital and risk regardless of whether banks are listed or not.

Keywords: Regulation; Bank capital; Risk taking; Lebanon (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1057/s41261-019-00111-2

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