Literature on the linkage between bank Capital and risk
| References | Country | Data period | Methodology | Findings |
|---|---|---|---|---|
| Literature based on positive relationship between bank capital and risk | ||||
| Bitar et al. (2016) | MENA | 1999-2013 | OLS | Significant positive association between capital and risk |
| Ghosh (2014) | GCC banks | – | 3SLS | Positive association between capital ratio and risk |
| Shim (2010) | US banking sector | 1993-2004 | 3SLS | High capital requirement increases the risk of the bank |
| Ho and Hsu (2010) | Taiwan banking sector | 1996-2006 | OLS | Restrictions on CAR have positive impact on banks’ risky investment strategies |
| Ahmad et al. (2008) | Malaysia | 1995-2002 | OLS | There is a positive relationship between risk and capital |
| Iannotta et al. (2007) | European banking sector | 1999-2004 | Panel data model | Significant positive association between capital and risk |
| Altunbas et al. (2007) | Europe banking sector | 1992-2000 | Seemingly Unrelated Regression | There is a Positive association between risk and capital of the bank |
| Lin et al. (2005) | Taiwan banking sector | 1993-2000 | Ordinary Least Square (OLS) | A positive relationship is found between CAR and risk |
| Aggarwal and Jacques (2001) | US banking sector | 1991-1996 | 3SLS | Higher credit risk increases the higher capital ratio of the bank |
| Rime (2001) | Swiss Bank | 1989-1995 | 3SLS | There is a positive relationship between the changes in capital and changes in risk of the bank |
| Ashraf et al. (2016a) | Pakistan | 2005-2012 | System GMM | Either lower or higher bank risk-based capital ratios have decreased portfolio risk |
| Baselga-Pascual et al. (2015) | Europe | 2001-2012 | Dynamic Panel Data Model | There is an inverse association between capitalization and bank risk |
| Lee and Hsieh (2013) | Asian countries banking sector | 1994-2008 | GMM | Commercial banks reveal the significantly inverse relationship between capital and risk |
| Lee and Chih (2013) | China banking sector | 2004-2011 | OLS | Stricter regulations can reduce risk but not well for efficiency. CAR attempts to reduce risk |
| Zhou (2013) | – | – | – | CR can reduce risk |
| Agoraki et al. (2011) | Europe banking sector | 1998-2005 | GMM | Higher Capital requirements of the bank decrease the risk of the bank |
| Liu and Wilson (2010) | Japanese banking sector | 2007-2007 | GMM two-step system estimator and fixed effect estimator | Well-capitalized bank leads to lower credit risks of the banking industry and lowers capitalized bank leads to higher credit risks |
| Agusman et al. (2008) | Asian banking sector | 1998-2003 | Panel data model | There is an inverse relationship between risk and equity-to-TA. But this is not significantly existed |
| Zhang et al. (2008) | China banking sector | 2004-2006 | GMM | There is a negative relationship which indicates that increasing capital ratio is effectively reducing the portfolio risk of the bank |
| Hussain and Hassan (2005) | Developing Countries | 1991-2006 | – | Capital ratio reduces portfolio risk of banks. So, there is an inverse relationship between capital and risk |
| Guidara et al. (2013) | Canada banking sector | 1982-2010 | 2SGMM | There is no strong association between risk and capital buffers |
| References | Country | Data period | Methodology | Findings |
|---|---|---|---|---|
| MENA | 1999-2013 | OLS | Significant positive association between capital and risk | |
| GCC banks | – | 3SLS | Positive association between capital ratio and risk | |
| US banking sector | 1993-2004 | 3SLS | High capital requirement increases the risk of the bank | |
| Taiwan banking sector | 1996-2006 | OLS | Restrictions on CAR have positive impact on banks’ risky investment strategies | |
| Malaysia | 1995-2002 | OLS | There is a positive relationship between risk and capital | |
| European banking sector | 1999-2004 | Panel data model | Significant positive association between capital and risk | |
| Europe banking sector | 1992-2000 | Seemingly Unrelated Regression | There is a Positive association between risk and capital of the bank | |
| Taiwan banking sector | 1993-2000 | Ordinary Least Square (OLS) | A positive relationship is found between CAR and risk | |
| US banking sector | 1991-1996 | 3SLS | Higher credit risk increases the higher capital ratio of the bank | |
| Swiss Bank | 1989-1995 | 3SLS | There is a positive relationship between the changes in capital and changes in risk of the bank | |
| Pakistan | 2005-2012 | System GMM | Either lower or higher bank risk-based capital ratios have decreased portfolio risk | |
| Europe | 2001-2012 | Dynamic Panel Data Model | There is an inverse association between capitalization and bank risk | |
| Asian countries banking sector | 1994-2008 | GMM | Commercial banks reveal the significantly inverse relationship between capital and risk | |
| China banking sector | 2004-2011 | OLS | Stricter regulations can reduce risk but not well for efficiency. CAR attempts to reduce risk | |
| – | – | – | CR can reduce risk | |
| Europe banking sector | 1998-2005 | GMM | Higher Capital requirements of the bank decrease the risk of the bank | |
| Japanese banking sector | 2007-2007 | GMM two-step system estimator and fixed effect estimator | Well-capitalized bank leads to lower credit risks of the banking industry and lowers capitalized bank leads to higher credit risks | |
| Asian banking sector | 1998-2003 | Panel data model | There is an inverse relationship between risk and equity-to-TA. But this is not significantly existed | |
| China banking sector | 2004-2006 | GMM | There is a negative relationship which indicates that increasing capital ratio is effectively reducing the portfolio risk of the bank | |
| Developing Countries | 1991-2006 | – | Capital ratio reduces portfolio risk of banks. So, there is an inverse relationship between capital and risk | |
| Canada banking sector | 1982-2010 | 2SGMM | There is no strong association between risk and capital buffers | |
Note:
Own elaboration
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