Bank capital and risk in the South Eastern European region

38 Pages Posted: 28 Jul 2022

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2011


This paper examines the simultaneous relationship between bank capital and risk. A model is set up which assumes that banks’ decisions regarding capital and risk are made endogenously in a dynamic pattern. A simultaneous equation system was estimated using an unbalanced panel of SEE banks from 2001 to 2009. A key result for the whole sample of banks is the relationship between regulatory (equity) capital and risk which is positive (negative). However, a positive two-way relationship between regulatory capital and risk was found only in less than-adequately capitalized banks, which also increased substantially their risk in 2009. Thus, banks’ decisions differentiate between equity capital and risk and regulatory capital and risk. A positive, significant and robust effect of liquidity on capital was identified. Both regulatory and equity capital exhibit procyclical behavior, whilst the relationship between risk and rate of growth of GDP is ambitious.

Keywords: Banking, Capital, Risk, Liquidity, Regulation, Dynamic panel estimation

JEL Classification: C33, G21, G32

Suggested Citation

Athanasoglou, Panayiotis P., Bank capital and risk in the South Eastern European region (August 1, 2011). Bank of Greece Working Paper No. 137, Available at SSRN: or

Panayiotis P. Athanasoglou (Contact Author)

Investments & Wealth Institute (IWI) USA ( email )

POB 78519
GR 17603 Athens, 17603

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