Basel Capital Adequacy Agreements and Bank Risk: Some Australian Evidence

28 Pages Posted: 4 Feb 2014

See all articles by Bernard Bollen

Bernard Bollen

University of New England (Australia) - New England Business School

Michael T. Skully

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Xiaoting Wei

Monash University

Date Written: January 31, 2014

Abstract

This paper examines the impact of the Basel agreements (Basel I introduced in 1988, Basel I with market risk in 1998 and Basel II in 2008), on the level of systematic risk of the Australian big four banks. An augmented market model with three dummy variables is employed to capture any changes in systematic risk after each agreement was introduced. We contribute to the strand of literature on the effectiveness of the Basel agreements by providing evidence consistent with the view that the Basel agreements did not help to control bank risk, but instead increased it. In particular, we find that bank risk increased after Basel I and Basel II. Basel I with market risk partially achieved its goal with the Westpac Banking Corporation and Australia and New Zealand Banking Group Limited showing decreased risk while the National Australia Bank and Commonwealth Bank of Australia had no change.

Keywords: Bank regulation, Basel Accord, and Bank risk

JEL Classification: G21

Suggested Citation

Bollen, Bernard and Skully, Michael T. and Wei, Xiaoting, Basel Capital Adequacy Agreements and Bank Risk: Some Australian Evidence (January 31, 2014). 2014 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=2389188 or http://dx.doi.org/10.2139/ssrn.2389188

Bernard Bollen

University of New England (Australia) - New England Business School ( email )

Armidale, New South Wales
Australia

Michael T. Skully (Contact Author)

Monash University - Department of Banking and Finance ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
+61 3 9903 2407 (Phone)
+61 3 9903 1443 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Xiaoting Wei

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
134
Abstract Views
1,034
rank
271,634
PlumX Metrics