IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v98y2025ics1059056025001145.html
   My bibliography  Save this article

Tailored microprudential recommendations for bank profit retention using a risk tolerance framework

Author

Listed:
  • Jakubik, Petr
  • Moinescu, Bogdan Gabriel

Abstract

This study presents a tailored microprudential approach to profit retention by reversing bank failure prediction models within a risk tolerance framework. Using a dataset of approximately 700 European commercial banks from 2012 to 2022, including around 30 failed institutions identified by the European Banking Authority based on notifications of resolution cases and liquidations involving deposit guarantee funds, the research develops several early warning models. These models integrate macrofinancial stress indicators, bank-specific intermediation measures, financial control variables, and capital buffers. The aim is to align prudential expectations for dividend payout ratios with each bank's risk profile, derived from distress probability models. The results propose that banks' dividend policies should be adjusted based on their capital adequacy and failure likelihood, offering a dynamic and risk-based approach to profit retention. These insights are critical for policymakers, supervisors, and bank managers focused on maintaining financial stability and optimizing prudential buffers, while allowing for more flexible capital planning tailored to macroeconomic conditions.

Suggested Citation

  • Jakubik, Petr & Moinescu, Bogdan Gabriel, 2025. "Tailored microprudential recommendations for bank profit retention using a risk tolerance framework," International Review of Economics & Finance, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025001145
    DOI: 10.1016/j.iref.2025.103951
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056025001145
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2025.103951?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Prudential policy; Profit retention recommendations; Bank risk; Reversed early warning system; Capital buffer; Dividend payout ratio;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025001145. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.