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Risk-based capital standards and bank behaviour in emerging and developed countries

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Abstract

The purpose of this article is to examine the impact of the Basel capital standards on bank behaviour. Using a simultaneous equations framework, this study is the first to provide a comparative analysis between emerging and developed countries' banks. The aim is to test whether there are differences in capital and risk decisions, as well as in regulatory pressure effects between the two groups of banks. The results show that in emerging countries, commercial banks do not act in line with regulatory requirements, and that regulatory pressure does not push undercapitalized banks to boost capital. Undercapitalized banks take rather risky decisions in order to increase capital more quickly and to avoid legal restrictions. In addition, estimation results also indicate that in the Basel Committee member countries banks operate more consistently with authorities’ expectations and that regulatory pressure induces them to significantly increase eligible capital.

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Acknowledgements

Thanks to Raphaëlle Bellando and Christophe Godlewski for their comments. The usual disclaimer applies.

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  1. Unité de Recherche en Microéconomie Appliquée, FSEG Tunis, Campus universitaire, B.P 248 El Manar II 2092, Tunis, Tunisia

    Zied Saadaoui

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Correspondence to Zied Saadaoui.

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Saadaoui, Z. Risk-based capital standards and bank behaviour in emerging and developed countries. J Bank Regul 12, 180–191 (2011). https://doi.org/10.1057/jbr.2010.26

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