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Bank Capital Behaviour: Empirical Evidence for Switzerland

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In recent years, regulators have increased their focus on the capital adequacy of banking institutions to enhance the stability of the financial system. The purpose of the present paper is to shed some light on whether and how Swiss Banks react to constraints placed by the regulator on their capital. Building on previous work by Shrieves and Dahl (1992), we use a simultaneous equations model to analyse adjustments in capital and risk at Swiss banks, when those approach the minimum regulatory capital level. Our results indicate that regulatory pressure induce banks to increase their capital, but does not affect the level of risk.

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  • Bertrand Rime, 2000. "Bank Capital Behaviour: Empirical Evidence for Switzerland," Working Papers 00.05, Swiss National Bank, Study Center Gerzensee.
    • Handle: RePEc:szg:worpap:0005
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    1. Pamela P. Peterson & Larry D. Wall, 1996. "Banks' responses to binding regulatory capital requirements," Economic Review, Federal Reserve Bank of Atlanta, vol. 80(Mar), pages 1-17.
    2. Keeley, Michael C. & Furlong, Frederick T., 1990. "A reexamination of mean-variance analysis of bank capital regulation," Journal of Banking & Finance, Elsevier, vol. 14(1), pages 69-84, March.
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    5. Paul S. Calem & Rafael Rob, "undated". "The Impact of Capital-Based Regulation on Bank Risk-Taking: A Dynamic Model," Finance and Economics Discussion Series 1996-12, Board of Governors of the Federal Reserve System (U.S.), revised 04 Dec 2019.
    6. Berger, Allen N. & Herring, Richard J. & Szego, Giorgio P., 1995. "The role of capital in financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 393-430, June.
    7. Raj Aggarwal & Kevin T. Jacques, 1998. "Assessing the impact of prompt corrective action on bank capital and risk," Economic Policy Review, Federal Reserve Bank of New York, vol. 4(Oct), pages 23-32.
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    15. George Sheldon, 1996. "Capital Adequacy Rules and the Risk-Seeking Behavior of Banks: A Firm-Level Analysis," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 132(IV), pages 709-734, December.
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    Cited by:

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    3. Saibal Ghosh & D. M. Nachane & Aditya Narain & Satyananda Sahoo, 2003. "Capital requirements and bank behaviour: an empirical analysis of Indian public sector banks," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(2), pages 145-156.

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    More about this item

    Keywords

    Risk-based capital; Capital ratios; Portfolio risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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