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Adjustment of Bank Capital Ratios: New Evidence From Commercial Banks

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  • Faisal Abbas

    (University of Central Punjab, Pakistan)

Abstract

This study explores the speed of adjustment of the capital ratio, regulatory ratio, and tier-‎I ‎ratio of ‎commercial banks in China by employing the GMM framework ‎from ‎‎2006 to 2020. The empirical ‎analysis reveals that banks adjust their regulatory ratio and tier-I ‎ratio faster than the capital ratio of ‎Chinses commercial banks. The findings report that the pace of ‎regulatory ratio, a tier-I ratio of ‎well-capitalized, highly liquid, and high growth banks are faster than ‎under-capitalized, low liquid ‎and low growth commercial banks in China. In addition, the speed ‎of adjustment of regulatory ‎ratio, the tier-I ratio is faster than capital ratio during the GFC-2008 in ‎China. These ‎findings suggest ‎that the regulators may consider the heterogeneity in the speed of ‎capital adjustment ‎across ‎different bank characteristics to formulate new bank regulations; ‎particularly, when ‎assessing and ‎adjusting the specific capital requirements through Pillar II of the ‎Basel III agreement.‎

Suggested Citation

  • Faisal Abbas, 2023. "Adjustment of Bank Capital Ratios: New Evidence From Commercial Banks," International Journal of Corporate Finance and Accounting (IJCFA), IGI Global, vol. 10(1), pages 1-15, January.
    • Handle: RePEc:igg:jcfa00:v:10:y:2023:i:1:p:1-15
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    References listed on IDEAS

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    1. Faisal Abbas & Shoaib Ali & Ghulame Rubbaniy, 2021. "Economics of capital adjustment in the US commercial banks: empirical analysis," Journal of Applied Economics, Taylor & Francis Journals, vol. 24(1), pages 71-90, January.
    2. Chalermchatvichien, Pichaphop & Jumreornvong, Seksak & Jiraporn, Pornsit, 2014. "Basel III, capital stability, risk-taking, ownership: Evidence from Asia," Journal of Multinational Financial Management, Elsevier, vol. 28(C), pages 28-46.
    3. Chiaramonte, Laura & Casu, Barbara, 2017. "Capital and liquidity ratios and financial distress. Evidence from the European banking industry," The British Accounting Review, Elsevier, vol. 49(2), pages 138-161.
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