Bank regulation and risk in Europe and Central Asia since the global financial crisis
Open Access
- 22 January 2020
- journal article
- Published by Virtus Interpress in Risk Governance and Control: Financial Markets & Institutions
- Vol. 10 (1), 75-93
- https://doi.org/10.22495/rgcv10i1p6
Abstract
This paper examines changes in bank capital and capital regulations since the global financial crisis, in the Europe and Central Asia region. It shows that banks in Europe and Central Asia are better capitalized, as measured by regulatory capital ratios, than they were prior to the crisis. However, the increase in simple equity ratios for the same banks has been smaller over the past 10 years. The increases in regulatory capital ratios have coincided with a reduction in the stringency of the definition of Tier 1 capital and reduction in risk-weights. We further analyze the relationship between bank capital and bank risk using individual bank data. We show that bank risk in Europe and Central Asia is more sensitive to changes in simple leverage ratios than changes in regulatory capital ratios, consistent with the notion that equity ratios only include high-quality capital and do not rely on internal risk models to compute risk-weights. Although there has been some effort to increase capital and liquidity requirements for institutions deemed systemically important, the region has been lagging in addressing the resolution of these institutions. In line with Demirguc-Kunt, Detragiache, and Merrouche (2013), our findings show the importance of the definition of bank capital to assure bank financial stability in Europe and Central Asia.Keywords
Funding Information
- World Bank Group (Knowledge for Change Program (KCP))
This publication has 29 references indexed in Scilit:
- Bank Regulation and Supervision Ten Years after the Global Financial CrisisPublished by World Bank ,2019
- Preferential Regulatory Treatment and Banks' Demand for Government BondsJournal of Money, Credit and Banking, 2016
- Securitization without risk transferJournal of Financial Economics, 2013
- How Emerging Europe Came Through the 2008/09 CrisisPublished by International Monetary Fund (IMF) ,2012
- Revisiting Risk-Weighted AssetsIMF Working Papers, 2012
- Bank regulation, property prices and early warning systems for banking crises in OECD countriesJournal of Banking & Finance, 2010
- Credit Market Competition and Capital RegulationThe Review of Financial Studies, 2009
- Bank performance, efficiency and ownership in transition countriesJournal of Banking & Finance, 2005
- Bank Ownership and EfficiencyJournal of Money, Credit and Banking, 2001
- The role of capital in financial institutionsJournal of Banking & Finance, 1995