The Nexus Between Underlying Dynamics of Bank Capital Buffer and Performance

56 Pages Posted: 6 Apr 2019

See all articles by E. C. Mamatzakis

E. C. Mamatzakis

Birkbeck College, University of London

Anna Bagntasarian

University of Sussex - School of Business, Management and Economics

Date Written: March 1, 2019

Abstract

This paper reveals the underlying dynamics between the capital buffer and bank performance in EU-27 countries. A dynamic panel analysis shows that capital buffer is significantly affected by bank performance and risk exposure. Remarkably, a threshold analysis identifies regime changes for the underlying relationships during the financial crisis of 2008. We find a positive relationship between the capital buffer and performance for banks that fall in the low performance regime, while a negative relationship is reported for the banks that belong to the high regime. Threshold results also show that buffer exerts a positive impact on bank performance. Although regulation reforms that aim to raise the capital requirements could improve bank performance and stability, these improvements are not homogeneous across banks.

Keywords: Capital buffer; Dynamic threshold; Performance; Bank default risk

JEL Classification: G20; G21; G28

Suggested Citation

Mamatzakis, E. C. and Bagntasarian, Anna, The Nexus Between Underlying Dynamics of Bank Capital Buffer and Performance (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=3345021 or http://dx.doi.org/10.2139/ssrn.3345021

E. C. Mamatzakis (Contact Author)

Birkbeck College, University of London

Malet St,
Bloomsbury,
London, WC1E7HX
United Kingdom

Anna Bagntasarian

University of Sussex - School of Business, Management and Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

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