Does capital regulation matter for bank behavior? Evidence for German savings banks

Frank Heid, Daniel Porath and Stephanie Stolz

No 1192, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The aim of this paper is to assess how German savings banks adjust capital and risk under capital regulation. We estimate a modified version of the model developed by Shrieves and Dahl (1992). In comparison to former research, we impose fewer restrictions with regard to the impact of regulation on capital and risk adjustments. Besides, we complement our analysis with dynamic panel data techniques and a rolling window approach. We find evidence that the coordination of capital and risk adjustments depends on the amount of capital the bank holds in excess of the regulatory minimum (the so-called capital buffer). Banks with low capital buffers try to rebuild an appropriate capital buffer by raising capital and simultaneously lowering risk. In contrast, banks with high capital buffers try to maintain their capital buffer by increasing risk when capital increases.

Keywords: bank regulation; risk taking; bank capital (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Does capital regulation matter for bank behaviour? Evidence for German savings banks (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1192

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