Does Banks’ Systemic Importance Affect Their Capital Structure and Balance Sheet Adjustment Processes?

53 Pages Posted: 16 Jun 2017 Last revised: 21 Dec 2018

See all articles by Yassine Bakkar

Yassine Bakkar

School of Business and Governance – Tallinn University of Technology

Olivier De Jonghe

Tilburg University - Department of Finance; National Bank of Belgium - Research Department; Tilburg University - European Banking Center

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: December 20, 2018

Abstract

Frictions prevent banks to immediately adjust their capital ratio towards their desired and/or imposed level. This paper analyzes (i) whether or not these frictions are larger for regulatory capital ratios vis-à-vis a plain leverage ratio; (ii) which adjustment channels banks use to adjust their capital ratio; and (iii) how the speed of adjustment and adjustment channels differ between large, systemic and complex banks versus small banks. Our results, obtained using a sample of listed banks across OECD countries for the 2001-2012 period, bear critical policy implications for the implementation of new (systemic risk-based) capital requirements and their impact on banks’ balance sheets, specifically lending, and hence the real economy.

Keywords: capital structure, speed of adjustment, systemic risk, systemic size, bank regulation, lending, balance sheet composition

JEL Classification: G20, G21; G28

Suggested Citation

Bakkar, Yassine and De Jonghe, Olivier and Tarazi, Amine, Does Banks’ Systemic Importance Affect Their Capital Structure and Balance Sheet Adjustment Processes? (December 20, 2018). Available at SSRN: https://ssrn.com/abstract=2986831 or http://dx.doi.org/10.2139/ssrn.2986831

Yassine Bakkar (Contact Author)

School of Business and Governance – Tallinn University of Technology ( email )

Akadeemia tee 3
Tallinn, Harjumaa 12618
Estonia

Olivier De Jonghe

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
0031-13-466.2650 (Phone)

National Bank of Belgium - Research Department ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

Tilburg University - European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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