Business and Economic Horizons

  Previous Article | Back to Volume | Next Article
  Abstract | References | Citation | Download | Preview | Statistics
Volume 15
Issue 1
Online publication date 2019-02-03
Title Influence of regulatory capital requirements on the self-financing capacity of a banking company
Author Ivica Klinac, Anita Pesa, Berislav Bolfek
Abstract
This paper explores activities of the banking companies in the new regulatory environment of the European banking system. For this purpose, the dynamic panel data models are estimated by utilizing the system GMM estimator. The research sample consists of 35 publicly listed groups of banks operating in the period from 2000 to 2016, selected by size of assets. The chosen banking companies are unquestionably market makers on the bank-centric economy of the EU. Hence, the research is in line with other current empirical works regarding the post-Basel III Standard adjustment of the banking industry as a whole. The model results show that the required increase in capital position affects the lack of bank credit activity towards the non-financial sector. The banks can maintain the higher regulatory capital ratio and self-finance the required growth by increasing the volume of share capital. Asymmetric information about the bank's net worth discourage public investors to get into the shareholders position, which results in further bank lending constraints and reduced profitability. Potential growth of the revenue from non-credit risk operations cannot compensate for the negative pressure on the real value of the banking firm. From the policy-making perspective, the paper concludes that the resolution of structural problems of non-performing credit assets under new regulatory conditions should contribute to restoring the confidence of the investment public towards the self-financing capacity of the banking industry as well as bring the banking system back to the traditional client-oriented business model. 
Citation
References
Admati, A. R., DeMarzo, P. R., Hellwig, M. F.,  & Pfleiderer, P. C. (2010). Fallacies, irrelevant facts, and myths in the discussion of capital regulation: Why bank equity is not expensive, Working Paper, Stanford University.

Allen, F., & Carletti, E. (2013). Deposits and bank capital structure, ECO Working Paper, No. 2013/03.

Bank for International Settlements (BIS). (2010). Basel III: A global regulatory framework for more resilient banks and banking systems. Basel: Bank for International Settlements (BIS).

Basel Committee on Banking Supervision (BCBS). (2010). An assessment of the long-term economic impact of stronger capital and liquidity requirements. Interim report, August 2010, p. 1-6.

Beltratti, A., & Stulz, R. (2012). The credit crisis around the globe: Why did some banks perform better? Journal of Financial Economics, 105(1), 1-17.

Berger, A., & Bouwman, C. H. S. (2009). Bank capital, survival and performance around financial crises, Working Paper, August 2009.

Bogdanova, B., Fender, I., & Takáts, E. (2018). The ABCs of bank PBRs. BIS Quarterly Review, March 2018.

Bolton, P., & Freixas, X. (2006). Corporate finance and the monetary transmission mechanism, Review of Financial Studies, 19, 829-870.

Calomiris, C. W., & Kahn, C. M. (1991). The role of demandable debt in structuring optimal banking arrangements, American Economic Review, 81, 497-513.

Chesney, M., Stromberg, J., & Wagner, A. (2010). Risk-taking incentives, governance, and losses in the financial crisis, Research Paper, 10-18, Swiss Finance Institute, Zurich.

DeAngelo, H., & Stulz, R. M. (2013). Why high leverage is optimal for banks, NBER Working Paper, No. 19139.

Demirguc-Kunt, A., & Detragiache, E., Merrouche, O. (2010). Bank capital: Lessons from the Financial Crisis, World Bank Working Paper, 5473, The World Bank.

Diamond, D., & Rajan, R. (2000). A theory of bank capital, NBER Working Paper, No. 7431.

Ercegovac, R. (2016). Teorija i praksa bankovnog menadžmenta, Faculty of Economics, University of Split, Split.

European Central Bank (ECB). Statistical data warehouse. Retrieved from: http:// sdw.ecb.europa.eu/.

European Parliament and Council Regulation No. 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms amending Regulation (EU) No. 648/2012. (2013). Official Journal of the European Union, L 176/1.

Eurostat. (n. d.). Retrieved from: http://ec.europa.eu/eurostat/data/database.

Kashyap, A. K., Stein J. C., & Hanson, S. (2010). An analysis of the impact of substantially heightened capital requirements on large financial institutions, Working Paper, November 2010.

King, M. R. (2010). Mapping capital and liquidity requirements to bank lending spreads, SSRN Working paper.

Miles D., Yang, J., & Marcheggiano, G. (2011). Optimal bank capital. The Economic Journal, 123, 1-37.

Miller, M. H. (1995). Does the M&M proposition apply to banks?, Journal of Banking and Finance, 19, 483-489.

Moussu, C., Ohana, S., & Troëge, M. (2011, April 19). Le faux graal de la performance bancaire, La Tribune, Retrieved from: https://www.latribune.fr/opinions/20110419trib000616341/le-faux-graal-de-la-performance-bancaire.html.

Myers, S. C. (1977). Determinants of corporate borrowing, Journal of Financial Economics, 5(2), 147-175.

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have, Journal of Financial Economics, 13(2), 187-221.

Orbis. (n. d.). Retrieved from: https://www.bvdinfo.com/

Pfleiderer, P.C. (2010). On the relevancy of Modigliani and Miller to banking: a parable and some observations, Working Paper, No. 93, Stanford University.

Plantin, G. (2014). Shadow banking and bank capital regulation. The Review of Financial Studies, 28(1), 146-175. doi: https://doi.org/10.1093/rfs/hhu055

Reuters. (n. d.). Retrieved from: https://www.reuters.com/.

Škrabić Perić, B. (2012). Utjecaj stranog vlasništva banke na njezin kreditni rizik u zemljama srednje i istočne Europe: dinamički panel modeli. (Unpublished doctoral dissertation). Faculty of Economics, University of Split, Split.

Verbeek, M. (2004). A guide to modern econometrics (2nd ed.). West Sussex: John Wiley & Sons Ltd.

Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. Cambridge, MA and London: The MIT Press

Keywords Return on equity, capital requirements, credit assets, dynamic panel models
DOI http://doi.org/10.5281/zenodo.3969928
Pages 70-89
Download Full PDF Download
  Previous Article | Back to Volume | Next Article
Share
Search in articles
Statistics
Journal Published articles
BEH 626
Journal Hits
BEH 1505173
Journal Downloads
BEH 47826
Total users online -