Bank Capital and Systemic Stability

This paper distinguishes among various types of capital and examines their effect on system-wide fragility. The analysis finds that higher quality forms of capital reduce the systemic risk contribution of banks, whereas lower quality forms can have a destabilizing impact, particularly during crisis periods. The impact of capital on systemic risk is less pronounced for smaller banks, for banks located in countries with more generous safety nets, and in countries with institutions that allow for better public and private monitoring of financial institutions. The results show that regulatory capital is effective in reducing systemic risk and that regulatory risk weights are correlated with higher future asset volatility, but this relationship is significantly weaker for larger banks. The paper also finds that increased regulatory risk-weights not correlated with future asset volatility increase systemic fragility. Overall, the results are consistent with the theoretical literature that emphasizes capital as a potential buffer in absorbing liquidity, information, and economic shocks reducing contagious defaults.

Bibliographic Details

Main Authors:	Anginer, Deniz, Demirguc-Kunt, Asli
Language:	English en_US
Published:	World Bank, Washington, DC 2014-06
Subjects:	ACCOUNTING, ARBITRAGE, ASSET PRICES, ASSET QUALITY, ASSET RATIO, ASSET VALUE, ASSET VALUES, ASYMMETRIC INFORMATION, BAILOUT, BALANCE SHEET, BALANCE SHEETS, BANK ACCOUNT, BANK CAPITAL, BANK CAPITAL REGULATION, BANK COMPETITION, BANK CREDITORS, BANK FAILURE, BANK FAILURES, BANK LIQUIDITY, BANK POLICY, BANK REGULATION, BANK RESTRUCTURING, BANK RISK, BANK RISK TAKING, BANK RUNS, BANK SAFETY, BANK SIZE, BANKING ASSETS, BANKING CRISIS, BANKING LAW, BANKING SECTOR, BANKING SECTORS, BANKING SYSTEM, BANKRUPTCY, BANKS, BASIS POINTS, BENEFICIARIES, BOOK VALUE, BORROWER, CALL OPTION, CAPITAL ADEQUACY, CAPITAL ADEQUACY RULES, CAPITAL ASSET, CAPITAL REGULATION, CAPITAL REQUIREMENTS, CAPITAL SHORTAGE, CAPITAL STANDARDS, CAPITALIZATION, COMMERCIAL BANKS, CONSOLIDATED FINANCIAL STATEMENTS, CONTAGION, CORPORATE DEBT, CREDIT BUREAU, CREDIT FLOWS, CREDIT INFORMATION, CREDIT MARKET, CREDIT REGISTRY, CREDITORS, CROSS-BORDER BANKING, DEBT, DEFAULT PROBABILITIES, DEFAULT RISK, DEFAULTS, DEPOSIT, DEPOSIT INSURANCE, DEPOSITORS, DEPOSITS, DUMMY VARIABLE, DUMMY VARIABLES, EARNINGS, ECONOMIC DEVELOPMENT, ECONOMIC POLICY, ECONOMIC SYSTEM, ECONOMICS, EMERGING MARKETS, EQUITY CAPITAL, EQUITY INVESTOR, EQUITY MARKETS, EQUITY RATIO, EQUITY RATIOS, EQUITY RETURN, EQUITY RETURNS, EQUITY VALUE, EQUITY VALUES, EXTERNAL AUDITORS, FACE VALUE, FEDERAL RESERVE, FEDERAL RESERVE BANK, FEDERAL RESERVE BANK OF NEW YORK, FINANCIAL CRISIS, FINANCIAL ENGINEERING, FINANCIAL INFORMATION, FINANCIAL INSTITUTION, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIARIES, FINANCIAL INTERMEDIATION, FINANCIAL RATIOS, FINANCIAL REGULATION, FINANCIAL SAFETY, FINANCIAL SAFETY NETS, FINANCIAL STABILITY, FINANCIAL STUDIES, FINANCIAL SYSTEM, FRAUD, GLOBAL BANKING, GLOBAL MARKET, GLOBALIZATION, IMPLICIT GUARANTEE, INFLATION, INFORMATION ASYMMETRY, INFORMATION SHARING, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL BANKS, INTERNATIONAL FINANCIAL SYSTEM, INTERNATIONAL RATING AGENCIES, INTERPOLATION, LAWS, LEVEL OF RISK, LIABILITY, LIMITED LIABILITY, LIQUID ASSETS, LIQUIDITY CREATION, LOAN, LOAN GUARANTEES, LOAN LOSS PROVISIONS, LOAN PROVISIONING, LOANABLE FUNDS, LOCAL GOVERNMENTS, MACROECONOMIC VARIABLES, MARKET COMPETITION, MARKET EQUITY, MARKET INDEX, MARKET INFORMATION, MARKET INTEGRATION, MARKET PARTICIPANTS, MARKET PRICES, MARKET RETURNS, MARKET SHARES, MARKET VALUE, MORAL HAZARD, NONPERFORMING LOANS, OFF BALANCE SHEET, OFF BALANCE SHEET EXPOSURES, PORTFOLIO, PORTFOLIO RISK, PORTFOLIOS, PRIVATE BANKS, PRIVATE CREDIT, PRIVATE CREDIT BUREAU, PUBLIC CREDIT, PUBLIC REGISTRY, RATING AGENCIES, REAL SECTOR, REGULATORY STANDARDS, REORGANIZATION, RESERVES, RISK ADJUSTED ASSETS, RISK EXPOSURE, RISK FACTORS, RISK MANAGEMENT, RISK MEASUREMENT, RISK TAKING, RISK WEIGHTED ASSETS, SAFETY NET, SAFETY NETS, SECURITIZATION, SHAREHOLDER, SHAREHOLDERS, STATE GUARANTEES, STOCK MARKET, STOCK MARKET CAPITALIZATION, STOCK MARKETS, STOCK RETURNS, SUBORDINATED DEBT, SUPERVISORY AGENCY, SUPERVISORY AUTHORITIES, SUPERVISORY AUTHORITY, SUPERVISORY POWER, SYNCHRONOUS STOCK PRICE MOVEMENTS, SYSTEMIC BANKING CRISES, SYSTEMIC RISK, T-BILL, T-BILL RATE, TANGIBLE ASSETS, TIER 1 CAPITAL, TIER 2 CAPITAL, TRANSPARENCY, TREASURY, TREASURY YIELD, VALUATION, VALUE OF ASSETS,
Online Access:	http://documents.worldbank.org/curated/en/2014/06/19731166/bank-capital-systemic-stability https://hdl.handle.net/10986/19377
Tags:	Add Tag No Tags, Be the first to tag this record!