Testing for the underlying dynamics of bank capital buffer and performance nexus

Anachit Bagntasarian and Emmanuel Mamatzakis
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Anachit Bagntasarian: University of Sussex

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Abstract: This paper reveals the underlying dynamics between the capital buffer and bank performance in EU-27 countries. A dynamic panel analysis shows that capital buffer is significantly affected by bank performance and risk exposure. Remarkably, a threshold analysis identifies regime changes for the underlying relationships during the financial crisis of 2008. We find a positive relationship between the capital buffer and performance for banks that fall in the low performance regime, while a negative relationship is reported for the banks that belong to the high regime. Threshold results also show that buffer exerts a positive impact on bank performance. Although regulation reforms that aim to raise the capital requirements could improve bank performance and stability, these improvements are not homogeneous across banks.

Keywords: Capital buffer; Dynamic threshold; Performance; Bank default risk (search for similar items in EconPapers)
Date: 2019-02
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Citations: View citations in EconPapers (2)

Published in Review of Quantitative Finance and Accounting, 2019, 52 (2), pp.347-380. ⟨10.1007/s11156-018-0712-y⟩

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Journal Article: Testing for the underlying dynamics of bank capital buffer and performance nexus (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02127592

DOI: 10.1007/s11156-018-0712-y

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