Impact of Bank Capital, Charter Value and Market Discipline on Bank Risk Exposure: Evidence from Asia Pacific

PurposeThis study investigates the inter-relationships among liquidity creation, bank capital and credit risk in selected emerging economies between 2012 and 2016.Design/methodology/approachA three-step procedure as proposed by Berger and Bouwman (2009) is used to measure liquidity creation. Thereafter, a simultaneous equations model with the generalized method of moments (GMM) estimator is used to examine the links between liquidity creation, bank capital and credit risk.FindingsThe findings indicate that bank capital and credit risk affect each other positively after controlling for liquidity creation. Also, the findings show a negative impact of credit risk on liquidity creation while our findings do not find any evidence to confirm the reverse relationship between them. Furthermore, the findings demonstrate a two-way negative relationship between liquidity creation and bank capital in these emerging economies. Finally, the results indicate a positive relationship between capital and credit risk, especially in the case of small banks in the sample.Practical implicationsThe findings suggest that the trade-off between the benefits of financial stability induced by tightening capital requirements and those of improved liquidity creation has crucial implications for policymakers and bank regulators in making the banking system more resilient. A positive impact of capital on credit risk emphasizes that the authorities in selected emerging economies should put more attention on small banks to ensure their exposures under target control.Originality/valueThis is the first study that examines the dynamic interrelationships among liquidity creation, bank capital and credit risk in the Asia–Pacific region.

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Bank risk-taking, risk-hedging and the effects of the risk-based bank capital regulation

Managerial Finance in the Corporate Economy ◽

10.4324/9780203984253-24 ◽

2005 ◽

pp. 213-224

Keyword(s):

Risk Taking ◽

Bank Risk ◽

Capital Regulation ◽

Bank Capital ◽

Risk Hedging ◽

Bank Capital Regulation

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The Role of Bank Liquidity and Bank Risk in Determining Bank Capital: Empirical Analysis of Asian Banking Industry

Review of Pacific Basin Financial Markets and Policies ◽

10.1142/s0219091520500204 ◽

2020 ◽

Vol 23 (03) ◽

pp. 2050020 ◽

Cited By ~ 1

Author(s):

Faisal Abbas ◽

Shahid Iqbal ◽

Bilal Aziz

Keyword(s):

Emerging Economies ◽

Commercial Banks ◽

Banking Industry ◽

Negative Association ◽

Bank Risk ◽

Standard Errors ◽

Bank Capital ◽

Short Run ◽

The Impact

This study provides new insights about how bank liquidity and bank risk have influenced the capital ratio of commercial banks operating in Asia’s emerging economies after the financial crisis 2007–2008. The data were collected for 377 banks from the Bankscope database covering the period of eight years between 2010 and 2017. The linear regression panel-corrected standard errors approach is used to find consistent estimators. The results of the overall sample and medium-sized banks regression revealed a positive relationship between bank liquidity and bank capital ratio, whereas the liquidity and bank capital ratio of large commercial banks have a negative association. The impact of liquidity on bank capital ratio is positive but insignificant in the case of smaller banks. The impact of bank risk on bank capital ratio is negative in the case of smaller and medium-sized banks, whereas the association is found positive in the case of larger and overall banks data results in short run, other things remain unchanged. The findings have valued information for researchers, analysts, managers, and policymakers.

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Charter value, Tobin's Q and bank risk during the subprime financial crisis

Journal of Economics and Business ◽

10.1016/j.jeconbus.2010.10.003 ◽

2011 ◽

Vol 63 (5) ◽

pp. 372-391 ◽

Cited By ~ 19

Author(s):

Jeffrey S. Jones ◽

Scott A. Miller ◽

Timothy J. Yeager

Keyword(s):

Financial Crisis ◽

Bank Risk ◽

Tobin’S Q ◽

Tobin's Q ◽

Charter Value

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Effects of Bank Capital on Profitability and Credit Risk: The Case of Vietnam's Commercial Banks

Journal of Asian Business and Economic Studies ◽

10.24311/jabes/2016.23.4.06 ◽

2016 ◽

Vol 23 (04) ◽

pp. 117-137

Author(s):

Vinh Nguyen Thi Hong ◽

Thao Le Phan Thi Dieu

Keyword(s):

Moral Hazard ◽

Credit Risk ◽

Method Of Moments ◽

Commercial Banks ◽

Generalized Method Of Moments ◽

Bank Risk ◽

Bank Capital ◽

Negatively Associated

This paper seeks to examine the effects of bank capital on profitability and credit risk of 30 Vietnam’s commercial banks from 2007 to 2014. Using the system generalized method of moments (GMM), the paper conducts several tests on the moral hazard and regulatory hypotheses on the relationships among bank capital, profitability, and credit risk. With no regard to other determinants, its results indicate that the effects are evident, i.e. bank risk is found to impact differently on bank returns, and it is also negatively associated with credit risk of commercial banks in Vietnam.

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The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging Economy

Lahore Journal of Business ◽

10.35536/ljb.2015.v4.i1.a4 ◽

2015 ◽

Vol 4 (1) ◽

pp. 61-73 ◽

Cited By ~ 3

Author(s):

Ayesha Afzal

Keyword(s):

Perceived Risk ◽

Banking System ◽

Empirical Support ◽

Market Discipline ◽

Capital Adequacy ◽

Risk Level ◽

Bank Capital ◽

The Cost ◽

The Impact

This study presents empirical support for the role of market discipline in augmenting bank capital ratios in a competitive banking environment. Using a panel dataset on domestic commercial banks in Pakistan from 2009 to 2014, the study determines if the market penalized banks for any increase in their risk profile through a rise in the cost of raising funds. The results point to a significant relationship between capital adequacy and other risk factors, with the cost of deposits demonstrating how depositors align the required return to the perceived risk level of the bank. These findings have important implications for policymakers as market discipline could complement the role of regulators, which would eventually lower the cost of supervision. Moreover, the focus of international reforms as seen through the implementation of Basel III should continue to be on developing a more competitive and transparent banking system.

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