City Research Online

Bank Capital Management

Jokipii, T.K. (2009). Bank Capital Management. (Unpublished Doctoral thesis, City University London)

Abstract

The work undertaken in this study empirically explores the determinants of regulatory bank capital bu®ers, and how they in°uence bank decisions. Focusing on bank capital management under the Basel I framework, this thesis serves to address some of the con- cerns that have been voiced regarding the implementation of the new regulation (Basel II) and the broader economic e®ects that could result. In particular, the research chapters of this thesis examine the cyclical behavior of European bank capital bu®ers, the long run relationship between bank capital bu®ers and charter values, and the simultaneous adjustments of capital and risk. In each of the research chapters, we acknowledge the endogenous nature of the capital decision of a bank, and assume that banks will de¯ne an internally optimal probability of default (a function of risk and capital) to be managed over the long term. Adjustment costs, illiquid markets, together with the costs associated with a regulatory breach contribute as factors in a banks internal decision when setting a target capital ratio. Treating capital in this way, we note that it is the amount of capital held above the requirement that determines a banks attitude towards risk. Importantly, this work has shown that excessive risk taking is rarely a consequence of insu±cient capital.

Publication Type: Thesis (Doctoral)
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
Doctoral Theses
Doctoral Theses > Cass
URI: http://openaccess.city.ac.uk/id/eprint/11926
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