Regulation of Bank Capital and Behavior of Banks: Assessing the US and the EU-15 Region Banks in the 2000-2005 Period

In recent years, regulators have increased their focus on the capital adequacy of banking institutions to enhance their stability, hence the stability of the whole financial system. The purpose of this paper is to assess and compare how American and European banks adjust their level of capital and portfolio risk under capital regulation, whether and how they react to constraints placed by the regulators. In order to do this, we estimate a modified version of the simultaneous equations model developed by Shrieves and Dahl. This model analyzes adjustments in capital and risk at banks when they approach the minimum regulatory capital level. The results indicate that regulatory requirements have the desired effect on bank behavior. Both American and European banks that are close to minimum requirements simultaneously increase their capital. In addition, the US banks decrease their portfolio risk taking.banking regulation, Basel Capital Accord, capital adequacy, banks, simultaneous equations model

Did the Czech and Slovak Banks Increase their Capital Ratios by Decreasing Risk, Increasing Capital or Both?

AbstractThe average capital adequacy of Czech banks increased from 14.1% in 2009 to 17.1% in 2013. In the case of Slovak banks the figure increased even more, from 12.7% at end-2009 to 17.2% at end-2013. For the sample of the largest nine Czech and four Slovak banks we aim to identify the strategies that these banks adopted in order to increase their capital ratios. Our analysis shows that for Czech banks as with the large multi-national banks from advanced economies, increased capital has played a major role in increasing the average capital ratio. Slovak banks, in addition, significantly decreased their risk to strengthen the overall ratio. The results of our analysis are useful mainly from a regulatory point of view as in both the Czech Republic and Slovakia the countercyclical buffer is set to its minimum of 0% of risk-weighted assets and the national regulators may increase the buffer up to 2.5% in the medium or long term

Dopad Basel III na české banky a efektivita kapitálových pomerov predpovedať finančnú tieseň bánk

Cieľom tejto práce je vyhodnotiť dopad Basel III na české banky a tiež porovnať výkonnosť rôznych kapitálových ukazovateľov pri predpovedi finančnej tiesne banky. Po krátkom úvode, v druhej kapitole odhadujeme dopad sprísnených kapitálových požiadaviek Basel III na úverové spready v českom bankovom sektore. V tejto kapitole sme dospeli k záveru, že dopad sprísnenej regulácie kapitálu nepovedie v Českej republike k drahším úverom hlavne z toho dôvodu, že český bankový systém je dobre kapitalizovaný. V tretej kapitole identifikujeme stratégie, ktoré české banky použili, aby výrazne zvýšili svoju kapitálovú primeranosť medzi rokmi 2009 až 2013. Analýza ukazuje, že hlavnú úlohu pri zvyšovaní kapitálovej primeranosti českých bánk hrali zadržané zisky. Naviac, české banky tiež znížili priemerné riziko svojich aktív, aby ešte viac posilnili nárast kapitálovej primeranosti. V poslednej kapitole, s využitím databáze európskych bánk, ktoré sa dostali do finančnej tiesne medzi rokmi 2008 až 2012, porovnávame výkonnosť zložitých, rizikovo vážených ukazovateľov s výkonnosťou jednoduchých, pákových pomerov pri predikcii finančnej tiesne banky. Výsledky ukazujú, že jednoduché pákové ukazovatele môžu fungovať lepšie ako rizikovo vážené ukazovatele. I keď takéto zistenie nie je nezvratné, taktiež naznačuje, že zložitejšie modelovanie rizika nie vždy znamená tiež aj lepšie modelovanie rizika.The aim of this thesis is to evaluate the impact of Basel III on Czech banks and to compare the effectiveness of capital ratios in predicting bank distress. After a short introduction, in the second chapter we estimate the impact of tightened Basel III capital regulation on lending spreads in the Czech banking sector. In this chapter we conclude that the tightened capital regulation will not lead to more expensive borrowing in the Czech Republic mainly because the banking sector has been well-capitalized. In the third chapter we identify the strategies that Czech banks adopted in order to significantly increase their capital ratios between 2009 and 2013. Our analysis shows that retained earnings have played a major role in increasing the average capital adequacy of Czech banks. In addition, the Czech banks have decreased their average asset risk to further strengthen the overall capital adequacy ratio. In the last chapter, using a dataset on bank distress in European banks during 2008-2012, we compare the performance of risk-weighted capital ratios and simple leverage capital ratios to predict bank distress. Our results suggest that simple leverage ratios can perform better than complex risk-weighted capital ratios when predicting bank distress. While such a finding is not conclusive, it suggests that more complex risk modeling does not always mean better risk modeling

Foreign direct investment (FDI) into the Czech and Slovak Republic in years 1993-2003

Bakalárska práca na tému Príliv priamych zahraničných investícií (PZI) do Českej a Slovenskej republiky v rokoch 1993 až 2003 pozostáva z troch nosných a doplňujúcich sa oblastí týkajúcich sa všeobecnej analýzy PZI. V prvej časti ide o analýzu hlavných faktorov určujúcich príliv PZI s konkrétnou aplikáciou na sledované krajiny. V nadväzujúcej časti je to analýza samotného vývoja prílivu PZI do sledovaných krajín v rokoch 1993 až 2003. V poslednej časti je to analýza pozitívnych a negatívnych efektov spojených s prílivom zahraničného kapitálu do hostiteľskej krajiny, pričom v úplnom závere sú spomenuté aj vyhliadky investičnej atraktívnosti oboch krajín do budúcnosti.Bachelor thesis on the Inflow of the Foreign Direct Investment (FDI) into the Czech and Slovak Republic in years 1993 -- 2003 consists of three basic and complementary parts regarding the general FDI analysis. The first part is an analysis of the main factors determining the FDI inflow with the application and comparison of the two countries. The following part is an analysis of the FDI inflow into the two countries from 1993 till 2003. The last part is a study of positive and negative effects connected to the presence of foreign capital in the hostile country. Future outlooks of the investment attractiveness of the two countries are mentioned too.Institut ekonomických studiíFakulta sociálních vě

Dopad Basel III na české banky a efektivita kapitálových pomerov predpovedať finančnú tieseň bánk

The aim of this thesis is to evaluate the impact of Basel III on Czech banks and to compare the effectiveness of capital ratios in predicting bank distress. After a short introduction, in the second chapter we estimate the impact of tightened Basel III capital regulation on lending spreads in the Czech banking sector. In this chapter we conclude that the tightened capital regulation will not lead to more expensive borrowing in the Czech Republic mainly because the banking sector has been well-capitalized. In the third chapter we identify the strategies that Czech banks adopted in order to significantly increase their capital ratios between 2009 and 2013. Our analysis shows that retained earnings have played a major role in increasing the average capital adequacy of Czech banks. In addition, the Czech banks have decreased their average asset risk to further strengthen the overall capital adequacy ratio. In the last chapter, using a dataset on bank distress in European banks during 2008-2012, we compare the performance of risk-weighted capital ratios and simple leverage capital ratios to predict bank distress. Our results suggest that simple leverage ratios can perform better than complex risk-weighted capital ratios when predicting bank distress. While such a finding is not conclusive, it suggests that more complex risk modeling does not always mean better risk modeling

The impact of regulation of banks in the US and the EU -15 countries

The regulation of financial markets and banking industry has become one of the most discus- sed topics by both academics and practitioners in recent years. One of the reason is the fact that bank capital requirements play a prominent role in sustaining financial stability. There are different theories that have rivaling predictions about how banks adjust their risk and capital behavior to imposed regulatory constraints. This paper intends to contribute to these discussions as it tries to evaluate regulatory pressure on selected banks around the world in the 2000-2005 period. To our knowledge, we are the first to test and compare the capital and risk behavior of US banks and banks from the EU 15 region in this period. In order to provide our analysis, we estimate a modified version of the simultaneous equations model developed by Shrieves and Dahl. This model analy- zes adjustments in capital and risk at banks when they approach the minimum regulatory capital level. In the model, regulatory pressure is one of the explanatory variables and the dependent variables are changes in risk and capital. There are many methods that can be used to estimate the model; we have chosen the method of two-stage least squares (2SLS) and three-stage least squares (3SLS) estimates in order to test for the robustness of the results. The results indicate that regulatory requirements have the desired effect on bank behavior. We find that both European and US banks close to the minimum regulatory threshold tend to increase their capital adequacy by increasing their capital. Finally, we observe a positive and significant relationship between capital levels and risk exposure for both US and EU banks