Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/167812 
Year of Publication: 
2016
Citation: 
[Journal:] International Journal of Financial Studies [ISSN:] 2227-7072 [Volume:] 4 [Issue:] 3 [Publisher:] MDPI [Place:] Basel [Year:] 2016 [Pages:] 1-20
Publisher: 
MDPI, Basel
Abstract: 
In response to the global financial crisis of 2007-2009, risk-based capital requirements have been reinforced in the new Basel III Accord to counter excessive bank risk-taking behavior. However, prior theoretical as well as empirical literature that studies the impact of risk-based capital requirements on bank risk-taking behavior is inconclusive. The primary purpose of this paper is to examine the impact of risk-based capital requirements on bank risk-taking behavior, using a panel dataset of 21 listed commercial banks of Pakistan over the period 2005-2012. Purely regulatory measures of bank capital, capital adequacy ratio, and bank assets portfolio risk, risk-weighted assets to total assets ratio, are used for the main analysis. Recently developed small N panel methods (bias corrected least squares dummy variable (LSDVC) method and system GMM method with instruments collapse option) are used to control for panel fixed effects, dynamic dependent variables, and endogenous independent variables. Overall, the results suggest that commercial banks have reduced assets portfolio risk in response to stringent risk-based capital requirements. Results also confirm that all banks having risk-based capital ratios either lower or higher than the regulatory required limits, have decreased portfolio risk in response to stringent risk-based capital requirements. The results are robust to alternative proxies of bank risk-taking, alternative estimation methods, and alternative samples.
Subjects: 
capital regulation
bank risk taking
Basel-II
Basel-III
Pakistan
JEL: 
G21
G28
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

Files in This Item:
File
Size
543.88 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.