Basel III and perceived resilience of banks in the BRICS economies

Md Zakir Hossain, Md Atiqur Khan and M. Shibley Sadique

Applied Economics, 2018, vol. 50, issue 19, 2133-2146

Abstract: This study investigates how the additional capital and liquidity requirements of Basel III would increase the resilience of banks. In particular, using panel data from 2007 to 2014, we examine the resilience of banks in the BRICS economies. Our results suggest that a 10% increase in capital adequacy ratio (CAR), Tier 1 capital ratio (TRA), and leverage ratio (LEV), the resilience (as measured by Z-Score of banks) increases by about 2.18, 0.89 and 1.31%, respectively. Similarly, for a 100% increase in liquidity coverage ratio (LCR), the resilience of banks increases by 0.51%, 1.10% and 1.19%, respectively, in the models associated with CAR, TRA, and LEV. Hence, our findings suggest that the CAR is robust to increase the resilience of banks. Our study also reveals that the LCR and LEV are the most effective to increase the resilience of banks if implemented simultaneously. We also find that the stage of economic development does not matter in formulating policies for the BRICS economies, and finally, we provide empirical evidence that economy-wide risk, such as a financial crisis, does not affect the resilience of banks and it influences the resilience of banks in the BRICS economies in the same way before and after the crisis.

Date: 2018
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DOI: 10.1080/00036846.2017.1391999

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