Basel III, Ownership Concentration, Risk-Taking, and Capital Stability: Evidence from Asia

50 Pages Posted: 15 Sep 2014

See all articles by Pichaphop Chalermchatvichien

Pichaphop Chalermchatvichien

Bank of Thailand

Seksak Jumreonwong

Thammasat University

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Date Written: September 13, 2014

Abstract

This study investigates the associations among bank risk-taking, ownership concentration, and the recently-proposed standard for capital stability (Basel III). Consistent with theory, the evidence shows that a rise in ownership concentration by one standard deviation increases the extent of risk-taking by as much as 6-8%. Although Basel III does not start taking effect until 2013, we hypothetically apply the capital stability standard on a sample of East Asian banks in the period 2005-2009. Our results suggest that an improvement in capital stability by one standard deviation diminishes the extent of risk-taking by 5.37% (as measured by the bank’s Z-score). We also find that the standard for capital stability would have been more effective in countries with better economic development. Our results provide insights into the likely effects of Basel III and should be useful to a wide range of audiences, including policymakers, regulators, bankers, as well as practitioners and researchers.

Keywords: Basel III, Risk-taking, Bank Ownership, Capital Stability, Financial Crisis

JEL Classification: G01, G18, G21, G28, G34, G38

Suggested Citation

Chalermchatvichien, Pichaphop and Jumreonwong, Seksak and Jiraporn, Pornsit, Basel III, Ownership Concentration, Risk-Taking, and Capital Stability: Evidence from Asia (September 13, 2014). Available at SSRN: https://ssrn.com/abstract=2495842 or http://dx.doi.org/10.2139/ssrn.2495842

Pichaphop Chalermchatvichien

Bank of Thailand ( email )

273 Samsen Road
Bangkhunprom, Bangkok 10200
United States

Seksak Jumreonwong

Thammasat University ( email )

Bangkok, 10200
Thailand

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

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