Regulatory Capital and Bank Risk-Resilience Amid the Covid-19 Pandemic: How are the Basel Reforms Faring?

13 Pages Posted: 19 Sep 2022 Last revised: 26 Feb 2023

See all articles by Makafui Anani

Makafui Anani

Hong Kong Polytechnic University

Felix Owusu

Lingnan University

Abstract

In this paper, we address a long-standing policy question of whether higher levels of regulatory capital, ex-ante, makes banks risk-resilient in times of severe economic downturns. Using the Covid-19 crisis as an exogenous shock to the banking system in a difference-in-difference setting, the results indicate that banks with robust pre-crisis regulatory capital ratios are less risky (have a lower insolvency risk) relative to less-capitalised banks amid the crisis period. This suggests that the post 2007-09 Basel reforms have succeeded, to some extent, in strengthening the risk-resilience of banks during the Covid-19 economic fallout.

Keywords: COVID-19, Regulatory capital, Basel reforms, Bank insolvency risk, Government support

Suggested Citation

Anani, Makafui and Owusu, Felix, Regulatory Capital and Bank Risk-Resilience Amid the Covid-19 Pandemic: How are the Basel Reforms Faring?. Available at SSRN: https://ssrn.com/abstract=4213187

Makafui Anani (Contact Author)

Hong Kong Polytechnic University ( email )

Hung Hom
Kowloon
Hong Kong

Felix Owusu

Lingnan University ( email )

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