Banks’ Capital Surplus and the Impact of Additional Capital Requirements

Simona Malovana

No 2017/28, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: Banks in the Czech Republic maintain their regulatory capital ratios well above the level required by their regulator. This paper discusses the main reasons for this capital surplus and analyses the impact of additional capital requirements stemming from capital buffers and Pillar 2 add-ons on the capital ratios of banks holding such extra capital. The results provide evidence that banks shrink their capital surplus in response to higher capital requirements. A substantial portion of this adjustment seems to be delivered through changes in average risk weights. For this and other reasons, it is desirable to regularly assess whether the evolution and current level of risk weights give rise to any risk of underestimating the necessary level of capital.

Keywords: Banks; capital requirements; capital surplus; panel data; partial adjustment model (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2017-12, Revised 2017-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn and nep-rmg
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Working Paper: Banks' Capital Surplus and the Impact of Additional Capital Requirements (2017)
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