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

34 Pages Posted: 1 Jan 2011

See all articles by William B. Francis

William B. Francis

affiliation not provided to SSRN

Matthew Osborne

Bank of England

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

Francis, William B. and Osborne, Matthew, 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, 2010. Available at SSRN: https://ssrn.com/abstract=1733365 or http://dx.doi.org/10.1111/j.1468-2443.2010.01112.x

William B. Francis (Contact Author)

affiliation not provided to SSRN ( email )

Matthew Osborne

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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