Changes to Bank Capital Ratios and their Drivers Prior and During COVID-19 Pandemic: Evidence from EU

Pavel Jankulár and Zdeněk Tůma

No 5.004, FFA Working Papers from Prague University of Economics and Business

Abstract: We contribute to literature on banks´ strategies to increasing capital requirements in the period of 2017-2021. We analyze a sample of 85 European banks and differentiate between subgroups according to bank's size, capitalization and riskiness. We examine their responses to higher capital requirements following the issuance of finalized Basel III reforms and increased regulatory and supervisory scrutiny after the COVID-19 outbreak. We found evidence that banks´ adjustments in the direction of higher capital ratio were more pronounced and faster in the COVID-19 period, and that they depended on banks´ specific characteristics and positions. Identified variances between banks and periods resulted mainly from different treatment of risk on banks' books. In particular, higher capitalization and lower risk profile enabled banks to take on the risk regardless of period, while banks with increased risk rather limited their balance sheets to manage their capital ratios.

Keywords: capital ratio; Basel capital requirements; COVID-19 pandemic; global financial crisis (search for similar items in EconPapers)
JEL-codes: C33 G21 G28 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2023-06-09, Revised 2023-06-10
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cba, nep-eec, nep-mfd and nep-rmg
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