Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336419 
Year of Publication: 
2025
Citation: 
[Journal:] Latin American Journal of Central Banking (LAJCB) [ISSN:] 2666-1438 [Volume:] 6 [Issue:] 1 [Article No.:] 100143 [Year:] 2025 [Pages:] 1-17
Publisher: 
Elsevier, Amsterdam
Abstract: 
This paper finds that an additional percentage point in the ratio of Common Equity Tier 1 (CET1) capital to risk-weighted assets is associated with an increase in the Weighted Average Cost of Capital (WACC) of Chilean banks by a maximum of only 11.7 basis points. This result is found by evaluating the impact of capital ratios on the return on capital and on the return on debt, following alternative empirical strategies which consider both market data and bank balance sheet information. Higher capital ratios decrease the return on banks' capital - partly because more capital makes banks less risky - in magnitudes similar to those found in the literature for other countries. Second, we study the role of capital in the return of bank debt. We see a strong impact of capital ratios on the return of subordinated debt and no effect on senior debt.
Subjects: 
Basel III
Capital requirements
Regulatory policies
Subordinated debt
JEL: 
C23
E32
G12
G21
G38
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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