[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/zbw/safewp/296.html
   My bibliography  Save this paper

Supranational rules, national discretion: Increasing versus inflating regulatory bank capital?

Author

Listed:
  • Gropp, Reint
  • Mosk, Thomas
  • Ongena, Steven
  • Simac, Ines
  • Wix, Carlo
Abstract
We study how higher capital requirements introduced at the supranational level affect the regulatory capital of banks across countries. Using the 2011 EBA capital exercise as a quasi-natural experiment, we find that treated banks exploit discretion in the calculation of regulatory capital to inflate their capital ratios without a commensurate increase in their book equity and without a reduction in bank risk. Regulatory capital inflation is more pronounced in countries where credit supply is expected to tighten, suggesting that national authorities forbear their domestic banks to meet supranational requirements, with a focus on short-term economic considerations.

Suggested Citation

  • Gropp, Reint & Mosk, Thomas & Ongena, Steven & Simac, Ines & Wix, Carlo, 2020. "Supranational rules, national discretion: Increasing versus inflating regulatory bank capital?," SAFE Working Paper Series 296, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:296
    DOI: 10.2139/ssrn.3736781
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/227743/1/1743281986.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.2139/ssrn.3736781?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Reint Gropp & Thomas Mosk & Steven Ongena & Carlo Wix, 2019. "Banks Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 32(1), pages 266-299.
    2. Beck, Thorsten & Silva-Buston, Consuelo & Wagner, Wolf, 2023. "The Economics of Supranational Bank Supervision," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 58(1), pages 324-351, February.
    3. Mariathasan, Mike & Merrouche, Ouarda, 2014. "The manipulation of basel risk-weights," Journal of Financial Intermediation, Elsevier, vol. 23(3), pages 300-321.
    4. Andrew G. Haldane & Vasileios Madouros, 2012. "The dog and the frisbee," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 109-159.
    5. Craig O. Brown & I. Serdar Dinç, 2005. "The Politics of Bank Failures: Evidence from Emerging Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1413-1444.
    6. Laura Blattner & Luisa Farinha & Francisca Rebelo, 2017. "When Losses Turn Into Loans: The Cost of Undercapitalized Banks," 2017 Papers pbl215, Job Market Papers.
    7. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank supervision and corruption in lending," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2131-2163, November.
    8. Ansgar Walther & Lucy White & Itay Goldstein, 0. "Rules versus Discretion in Bank Resolution," Review of Financial Studies, Society for Financial Studies, vol. 33(12), pages 5594-5629.
    9. Degryse, Hans & Karapetyan, Artashes & Karmakar, Sudipto, 2021. "To ask or not to ask? Bank capital requirements and loan collateralization," Journal of Financial Economics, Elsevier, vol. 142(1), pages 239-260.
    10. Jean-Stéphane Mésonnier & Allen Monks, 2015. "Did the EBA Capital Exercise Cause a Credit Crunch in the Euro Area?," International Journal of Central Banking, International Journal of Central Banking, vol. 11(3), pages 75-117, June.
    11. Maddaloni, Angela & Scopelliti, Alessandro, 2019. "Rules and discretion(s) in prudential regulation and supervision: evidence from EU banks in the run-up to the crisis," Working Paper Series 2284, European Central Bank.
    12. Ansgar Walther & Lucy White & Itay Goldstein, 2020. "Rules versus Discretion in Bank Resolution," The Review of Financial Studies, Society for Financial Studies, vol. 33(12), pages 5594-5629.
    13. Martynova, Natalya & Perotti, Enrico & Suarez, Javier, 2019. "Bank capital forbearance," ESRB Working Paper Series 93, European Systemic Risk Board.
    14. Emily Jones & Alexandra O. Zeitz, 2017. "The Limits of Globalizing Basel Banking Standards," Journal of Financial Regulation, Oxford University Press, vol. 3(1), pages 89-124.
    15. Jean-Edouard Colliard, 2020. "Optimal Supervisory Architecture and Financial Integration in a Banking Union [Is the international convergence of capital adequacy regulation desirable?]," Review of Finance, European Finance Association, vol. 24(1), pages 129-161.
    16. Nicole M. Boyson & Rüdiger Fahlenbrach & René M. Stulz, 2016. "Why Don't All Banks Practice Regulatory Arbitrage? Evidence from Usage of Trust-Preferred Securities," The Review of Financial Studies, Society for Financial Studies, vol. 29(7), pages 1821-1859.
    17. Morrison, Alan D. & White, Lucy, 2013. "Reputational contagion and optimal regulatory forbearance," Journal of Financial Economics, Elsevier, vol. 110(3), pages 642-658.
    18. Huizinga, Harry & Laeven, Luc, 2012. "Bank valuation and accounting discretion during a financial crisis," Journal of Financial Economics, Elsevier, vol. 106(3), pages 614-634.
    19. Beck, Thorsten & De Jonghe, Olivier & Schepens, Glenn, 2013. "Bank competition and stability: Cross-country heterogeneity," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 218-244.
    20. Ramanna, Karthik, 2008. "The implications of unverifiable fair-value accounting: Evidence from the political economy of goodwill accounting," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 253-281, August.
    21. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
    22. Skinner, Douglas J., 2008. "The rise of deferred tax assets in Japan: The role of deferred tax accounting in the Japanese banking crisis," Journal of Accounting and Economics, Elsevier, vol. 46(2-3), pages 218-239, December.
    23. Goldstein, Itay & Leitner, Yaron, 2018. "Stress tests and information disclosure," Journal of Economic Theory, Elsevier, vol. 177(C), pages 34-69.
    24. Anne Beatty & Joseph Weber, 2006. "Accounting Discretion in Fair Value Estimates: An Examination of SFAS 142 Goodwill Impairments," Journal of Accounting Research, Wiley Blackwell, vol. 44(2), pages 257-288, May.
    25. Giacomo Calzolari & Jean-Edouard Colliard & Gyongyi Lóránth, 2019. "Multinational Banks and Supranational Supervision," The Review of Financial Studies, Society for Financial Studies, vol. 32(8), pages 2997-3035.
    26. Morrison, Alan & White, Lucy, 2013. "Reputational Contagion and Optimal Regulatory Forbearance," CEPR Discussion Papers 9508, C.E.P.R. Discussion Papers.
    27. Dell'Ariccia, Giovanni & Marquez, Robert, 2006. "Competition among regulators and credit market integration," Journal of Financial Economics, Elsevier, vol. 79(2), pages 401-430, February.
    28. Lubberink, Martien, 2014. "A Primer on Regulatory Bank Capital Adjustments," MPRA Paper 55290, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bednarek, Peter & Briukhova, Olga & Ongena, Steven & von Westernhagen, Natalja, 2023. "Effects of bank capital requirements on lending by banks and non-bank financial institutions," Discussion Papers 26/2023, Deutsche Bundesbank.
    2. Martynova, Natalya & Perotti, Enrico & Suarez, Javier, 2022. "Capital forbearance in the bank recovery and resolution game," Journal of Financial Economics, Elsevier, vol. 146(3), pages 884-904.
    3. Nicholas Fritsch & Jan-Peter Siedlarek, 2022. "How Do Banks Respond to Capital Regulation? — The Impact of the Basel III Reforms in the United States," Working Papers 22-11, Federal Reserve Bank of Cleveland.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elena Carletti & Giovanni Dell’Ariccia & Robert Marquez, 2021. "Supervisory Incentives in a Banking Union," Management Science, INFORMS, vol. 67(1), pages 455-470, January.
    2. Suarez, Javier & Sánchez Serrano, Antonio, 2018. "Approaching non-performing loans from a macroprudential angle," Report of the Advisory Scientific Committee 7, European Systemic Risk Board.
    3. Yue, Heng & Zhang, Liandong & Zhong, Qinlin, 2022. "The politics of bank opacity," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    4. Böhnke, Victoria & Ongena, Steven & Paraschiv, Florentina & Reite, Endre J., 2023. "Back to the roots of internal credit risk models: Does risk explain why banks' risk-weighted asset levels converge over time?," Journal of Banking & Finance, Elsevier, vol. 156(C).
    5. Joel Shapiro & Jing Zeng, 2024. "Stress Testing and Bank Lending," The Review of Financial Studies, Society for Financial Studies, vol. 37(4), pages 1265-1314.
    6. Viral V Acharya & Lea Borchert & Maximilian Jager & Sascha Steffen, 2021. "Kicking the Can Down the Road: Government Interventions in the European Banking Sector," The Review of Financial Studies, Society for Financial Studies, vol. 34(9), pages 4090-4131.
    7. Martynova, Natalya & Perotti, Enrico C. & Suárez, Javier, 2020. "Bank capital forbearance and serial gambling," Discussion Papers 56/2020, Deutsche Bundesbank.
    8. Martynova, Natalya & Perotti, Enrico & Suarez, Javier, 2019. "Bank capital forbearance," ESRB Working Paper Series 93, European Systemic Risk Board.
    9. Viral V. Acharya & Lea Borchert & Maximilian Jager & Sascha Steffen, 2023. "Kicking the Can Down the Road: Government Interventions in the European Banking Sector," CRC TR 224 Discussion Paper Series crctr224_2023_446, University of Bonn and University of Mannheim, Germany.
    10. Mikhail Mamonov, 2023. "Measuring Fraud in Banking and its Impact on the Economy: A Quasi-Natural Experiment," CERGE-EI Working Papers wp755, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    11. John Gallemore, 2023. "Bank financial reporting opacity and regulatory intervention," Review of Accounting Studies, Springer, vol. 28(3), pages 1765-1810, September.
    12. Giuliana Birindelli & Paola Ferretti & Giovanni Ferri & Marco Savioli, 2022. "Regulatory reform and banking diversity: reassessing Basel 3," Annals of Finance, Springer, vol. 18(4), pages 429-456, December.
    13. Martynova, Natalya & Perotti, Enrico & Suarez, Javier, 2022. "Capital forbearance in the bank recovery and resolution game," Journal of Financial Economics, Elsevier, vol. 146(3), pages 884-904.
    14. Kostic, Natalija & Muthsam, Viktoria & Laux, Christian, 2023. "Accounting Changes and Enforcement of Bank Capital Requirements in a Crisis," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277694, Verein für Socialpolitik / German Economic Association.
    15. Dai, Min & Huang, Shan & Keppo, Jussi, 2019. "Opaque bank assets and optimal equity capital," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 369-394.
    16. Chen, Minghua & Wu, Ji & Jeon, Bang Nam & Wang, Rui, 2017. "Monetary policy and bank risk-taking: Evidence from emerging economies," Emerging Markets Review, Elsevier, vol. 31(C), pages 116-140.
    17. Haselmann, Rainer & Singla, Shikhar & Vig, Vikrant, 2022. "Supranational supervision," LawFin Working Paper Series 50, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    18. Martynova, Natalya & Vogel, Ursula, 2022. "Banks’ complexity-risk nexus and the role of regulation," Journal of Banking & Finance, Elsevier, vol. 134(C).
    19. Bremus, Franziska & Ludolph, Melina, 2021. "The nexus between loan portfolio size and volatility: Does bank capital regulation matter?," Journal of Banking & Finance, Elsevier, vol. 127(C).
    20. Gyoengyi Loranth & Anatoli Segura & Jing Zeng, 2022. "Voluntary support and ring-fencing in cross-border banks," Temi di discussione (Economic working papers) 1373, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:safewp:296. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/csafede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.