Risk and Capital in Indonesian Large Banks
Arisyi Fariza Raz, (2018) "Risk and capital in Indonesian large banks", Journal of Financial Economic Policy, Vol. 10 Issue: 1, pp.165-184, DOI/10.1108/JFEP-06-2017-0055
Posted: 28 Sep 2018
Date Written: June 14, 2017
This study investigates the relationship between bank risk and capital using data on 15 Indonesian large banks between 2008 and 2015. Using z-score and Delta- CoVaR to measure both idiosyncratic and systemic risks, our empirical investigation suggests that capital has a negative and significant relationship with these risk measures. We also find that higher systemic risk encourages banks to increase their capital. However, similar evidence is not found in idiosyncratic risk models. Finally, we show that the role of capital in reducing risk is only robust during normal periods since banks may increase their assets risk during times of financial distress.
Keywords: Bank, Systemicrisk, Financial Markets and Institutions, Capital, Financial Risk and Risk Management, Insolvency
JEL Classification: C36, G21, G32
Suggested Citation: Suggested Citation