Risk-based capital standards and bank behaviour in emerging and developed countries

Saadaoui, Zied
March 2011
Journal of Banking Regulation;Mar2011, Vol. 12 Issue 2, p180
Academic Journal
The purpose of this article is to examine the impact of the Basel capital standards on bank behaviour. Using a simultaneous equations framework, this study is the first to provide a comparative analysis between emerging and developed countries' banks. The aim is to test whether there are differences in capital and risk decisions, as well as in regulatory pressure effects between the two groups of banks. The results show that in emerging countries, commercial banks do not act in line with regulatory requirements, and that regulatory pressure does not push undercapitalized banks to boost capital. Undercapitalized banks take rather risky decisions in order to increase capital more quickly and to avoid legal restrictions. In addition, estimation results also indicate that in the Basel Committee member countries banks operate more consistently with authorities' expectations and that regulatory pressure induces them to significantly increase eligible capital.


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