Banking Capitalization and Risk-taking Under Capital Adequacy Regulation:Empirical Evidence After Implementing the Capital Adequacy Standards

The paper investigates the impact the capital adequacy regulation has on bank capitalization and portfolio risk during the first year when the risk-based standard is in effect,exploiting simultaneous equations model.A negative association between change in capital and risk is found.The results suggest that the minimum capital standard is effective in increasing capital adequacy ratio,but not in reducing portfolio risk.Bank size helps banks to increase capital and reduce risks,but the profitability has no significant correlation with changes in capital.