Evaluating the Effectiveness of the Basel III G-SIB Capital Buffer Regulation: Experience from the 12 Years of a Quasi-Natural Experiment

Henry Penikas ()
Additional contact information
Henry Penikas: Research and Forecasting Department, Bank of Russia, Moscow, Russia

Quarterly Journal of Finance (QJF), 2025, vol. 15, issue 02, 1-35

Abstract: The objective of this work is to study banks’ response to the Basel III capital regulation for global systemically important banks (G-SIBs). The buffer is revised annually. We cannot apply conventional event studies and treatment effect evaluation methodology, so we modify it to account for the multiperiod treatment and the ongoing changes in the composition of the pilot (treated) and control groups. We reveal an asymmetric reaction by G-SIBs to changes in the capital buffer. Banks tend to reduce their capital ratios and expand lending when the applicable capital buffer is officially decreased. On the contrary, banks do not increase their capital ratios and do not contract lending as expected by the regulator after the applicable capital buffer is raised. The capital cushion accumulated earlier allows banks to withstand such a rise in the prudential capital buffer. Moreover, a change in regulation stimulates more risk-taking by global banks. When tightened, it is accompanied by an increase in own funds, while it is not accompanied by such an increase when it is eased. Thus, we recommend that the list of G-SIBs and the applicable capital surcharges be revised less often to avoid such unintended responses to regulation.

Keywords: Difference-in-differences; capital adequacy ratio; Basel Committee on Banking Supervision; SIFI; treatment effects; pandemics (search for similar items in EconPapers)
JEL-codes: C21 E58 G28 G32 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S201013922540004X
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:wsi:qjfxxx:v:15:y:2025:i:02:n:s201013922540004x

Ordering information: This journal article can be ordered from

DOI: 10.1142/S201013922540004X

Access Statistics for this article

Quarterly Journal of Finance (QJF) is currently edited by Fernando Zapatero

More articles in Quarterly Journal of Finance (QJF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().