On the Behavior and Determinants of Risk-Based Capital Ratios: Revisiting the Evidence from UK Banking Institutions

34 Pages Posted: 17 Nov 2010

Abstract

Using bank-level panel data from the United Kingdom, this paper investigates the factors that influence banks' choice of risk-based capital ratios. The study focuses on evaluating the role of regulatory capital requirements. Findings indicate that such requirements, even when not binding, affect banks' capital management practices and suggest that banks maintain targeted buffers above regulatory thresholds. That behavior differs across several dimensions, including bank size, nearness to regulatory minimum, reliance on core (equity) capital and exposure to market discipline. Capital ratios also vary over the economic cycle. These findings have implications for the ongoing review of international capital standards.

Suggested Citation

Osborne, Matthew and Francis, William B., On the Behavior and Determinants of Risk-Based Capital Ratios: Revisiting the Evidence from UK Banking Institutions. International Review of Finance, Vol. 10, No. 4, pp. 485-518, December 2010. Available at SSRN: https://ssrn.com/abstract=1710341 or http://dx.doi.org/10.1111/j.1468-2443.2010.01112.x

Matthew Osborne (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

William B. Francis

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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