How bank capital buffers vary across countries: the influence of cost of deposits, market power and bank regulation

By A. Díaz, F. González. 2010

293 citations recorded by the source corpus.

Abstract This paper analyzes the bank and country determinants of capital buffers using a panel data of 1337 banks in 70 countries between 1992 and 2002. After controlling for adjustment costs and the endogeneity of explanatory variables, the results show that capital buffers are positively related to the cost of deposits and bank market power, although the relations vary across countries depending on regulation, supervision, and institutions. Their impact is the result of two generally opposing effects: restrictions on bank activities and official supervision reduce the incentives to hold capital buffers by weakening market discipline, but at the same time they promote higher capital buffers by increasing market power. Institutional quality has the two opposite effects. Better accounting disclosure and less generous deposit insurance, however, have a clear positive effect on capital buffers by both strengthening market discipline and making charter value better able to reduce risk-taking incentives.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/209aec7bdaa751a09409168af9d330b6fe9760d5

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Citations in the corpus

Market concentration, risk-taking, and bank performance: evidence from emerging economies (2013, background): “Existing literature has examined bank capital buffers (Fonseca and Gonzalez, 2010), bank distress and financial crisis (Mannasoo and Mayes, 2009; Bongini et al., 2000), banking problems in Asian and South American in the 1980s and 1990s (Arena, 2005), and bank performance in individual countries…”
Banking crises and market discipline: International evidence (2012, methodology): “Nier and Baumann (2006) and Fonseca and González (2010) provide evidence that market discipline has a positive influence on capital buffers.”
Banking risk and regulation: Does one size fit all? (2012, unknown): “Our study is certainly not the first examining the impact of bank regulation and supervision using bank-level data (see, for instance, González, 2005; Demirgüç-Kunt et al., 2008; Fonseca and González, 2010).”
Market discipline, financial crisis and regulatory changes: Evidence from Indonesian banks (2011, methodology): “The index has been widely used in banking studies, see for example Ariss (2010) and Fonseca and González (2010).”
Bank regulatory capital and liquidity: Evidence from US and European publicly traded banks (2013, background): “Fungacova et al. (2010) examine how the introduction of deposit insurance influences the relationship between bank capital and liquidity creation. They test the two competing hypotheses highlighted by Berger and Bouwman (2009) using a sample of Russian banks from 1999 to 2007.”
Market power, revenue diversification and bank stability: Evidence from selected South Asian countries (2012, background): “…margins (Maudos and Fernández-de-Guevara, 2004), on financial stability (Jiménez and Saurina, 2004; Agoraki et al., 2011), on bank efficiency (Delis and Tsionas, 2009; Turk-Ariss, 2010) and on bank regulations (Beck et al., 2006; Fonseca and González, 2010) have also been extensively discussed.”