CAR 2: the impact of CAR on bank capital augmentation in Spain

Yener Altunbas, Santiago Carbo Valverde and Edward Gardener

Applied Financial Economics, 2000, vol. 10, issue 5, 507-518

Abstract: This paper reports on tests, using panel methods, of a new capital augmentation model on Spanish savings banks over the period 1987-1996. It is argued that this banking subsector and time frame provide an interesting laboratory of the potential impact of regulation on bank capital augmentation. Early modelling work in this area is built on by extending the control variables to encompass risks not factored into the regulatory capital adequacy ratio, managerial efficiency, innovation and a new productive efficiency variable. The results indicate strong evidence of the impact of the capital adequacy regulatory regime on bank capital augmentation. Furthermore, this impact appears to be related to the relative strictness of the regulatory regime. At the same time the model also confirms the particular importance of the expected return on bank capital and productive efficiency in explaining capital augmentation.

Date: 2000
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DOI: 10.1080/096031000416389

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