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Systemic risk, bank’s capital buffer, and leverage

Author

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  • Buddi Wibowo

    (Department of Management, Economic and Business Faculty, Universitas Indonesia, Jakarta, Indonesia)

Abstract

This paper measures individual bank’s impact on banking systemic risk and examines the effect of individual bank’s capital buffer and leverage to bank’s systemic risk im- pact in Indonesia during 2010-2014. Using Merton’s distance-to-default to measure systemic risk, the study shows a significant negative relationship between bank’s capital buffer and systemic risk. High capital buffer tends to lowering bank’s impact on systemic risk. Bank’s leverage level also influences its contribution to systemic risk, even though the impact is much lower compared to that of capital buffer impact.

Suggested Citation

  • Buddi Wibowo, 2017. "Systemic risk, bank’s capital buffer, and leverage," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 9(2), pages 150-158, April.
    • Handle: RePEc:uii:journl:v:9:y:2017:i:2:p:150-158
    DOI: 10.20885/ejem.vol9.iss2.art4
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    References listed on IDEAS

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    More about this item

    Keywords

    systemic risk; bank competition; distance-to-default; capital buffer; leverage;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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