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Title: The bank capital-competition-risk nexus; a global perspective
Authors: Davis, EP
Karim, D
Noel, D
Keywords: Macroprudential policy;capital adequacy;leverage ratio;bank competition;bank risks;emerging market economies;logit;GMM;Panel VAR
Issue Date: Jan-2019
Publisher: Brunel University London
Citation: Davis, E.P., Karim, D. and Noel, D. (2019) 'The bank capital-competition-risk nexus; a global perspective', Brunel University London. Department of Economics and Finance Working Paper No. 19-03. Available at:
Series/Report no.: Brunel University London. Department of Economics and Finance Working Papers;No. 19-03
Abstract: The Global Financial Crisis (GFC) highlighted the importance of a number of unresolved empirical issues in the field of financial stability. First, there is the sign of the relationship between bank competition and financial stability. Second, there is the relation of capital adequacy of banks to risk. Third, the introduction of a leverage ratio in Basel III following the crisis leaves open the question of its effectiveness relative to the risk adjusted capital ratio (RAR). Fourth, there is the issue of the relative stability of advanced versus emerging market financial systems, and whether similar factors lead to risk, which may have implications for appropriate regulation. Finally, there is the nature of the relation between bank competition and bank capital. In this context, we address these five issues via estimates for the relation between capital adequacy, bank competition and other control variables and aggregate bank risk. We undertake this for different country groups and time periods, using macro data from the World Bank’s Global Financial Development Database over 1999-2015 for up to 120 countries globally, using single equation logit and GMM estimation techniques and panel VAR. This is an overall approach that to our knowledge is new to the literature. The results cast light on each of the issues outlined above, with important implications for regulation.
Appears in Collections:Dept of Economics and Finance Research Papers

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