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Basel I introduced capital requirements for undrawn commitments, but only for revolvers with an original maturity greater than one year. We use this regulatory discontinuity to estimate the impact of capital regulation on the cost and composition of credit. Following Basel I, short-term commitment fees declined relative to long-term commitments and issuance of short-term facilities increased. Our results highlight the sensitivity of credit provision to capital regulation, particularly for banks with less capital. We are able to infer that low-capital banks are willing to forego twice as much income from fees to reduce required regulatory capital by a dollar. [ABSTRACT FROM AUTHOR]

We study how banks use "regulatory adjustments" to inflate their regulatory capital ratios and whether this depends on forbearance on the part of national authorities. Using the 2011 EBA capital exercise as a quasi-natural experiment, we find that banks substantially inflated their levels of regulatory capital via a reduction in regulatory adjustments (without a commensurate increase in book equity and without a reduction in bank risk). We document substantial heterogeneity in regulatory capital inflation across countries, suggesting that national authorities forbear their domestic banks to meet supranational requirements, with a focus on short-term economic considerations. [ABSTRACT FROM AUTHOR]

Purpose: We study how capital requirements, intended as a measure to ensure security for the financial system, can create moral hazard for banks in dealing with distressed debts. Design/methodology/approach: Over the period spanning from 1993 to 2019, we manually gathered data on 1953 firms, identifying a total of 2,146 distress events, with 804 instances resulting in bankruptcy fillings. Findings: Our analyses at the loan level and the bank level consistently show that loans of distressed firms are much more likely to be extended when the lenders are closer to the capital requirement limit. Exploiting the discontinuity in the predetermined maturity date of loans, we provide causal evidence on the relationship between capital ratios and extension likelihood. Distressed loans that are due just before the report date (end of a quarter) are much more likely to be extended than loans due just after the report date, after controlling for loan and firm characteristics. Additional analyses show that the effects are stronger when external financing is more costly and when the banks are poorly capitalized. Originality/value: Our paper presents the first causal evidence of capital requirements on lending distortion, contributing to our understanding of the dynamics within the banking sector and providing policy implications for promoting financial stability and regulatory efficacy. [ABSTRACT FROM AUTHOR]

This paper investigates the effects of the new post‐financial crisis regulatory regime – risk‐based capital ratios (RBC) and stress tests – on banks' off‐balance sheet activities (OBS). We use a panel of US bank holding companies over the period 2001–2018 to examine the relationship between banks' capital levels and OBS activities. Our major finding is that banks significantly reduced their OBS exposure following the introduction of the new capital regulatory framework requirements. In particular, we show that tighter regulatory RBC resulted in a reduction of OBS activities in well‐capitalised banks. Conversely, we find that under‐capitalised banks increased their OBS activities, which suggests the possibility of regulatory arbitrage. [ABSTRACT FROM AUTHOR]

Political influence on bank credit allocation is often viewed as being necessary to address social problems like income inequality. We hypothesize that such influence elicits bank capital responses. Our hypothesis yields three testable predictions for which we find supporting evidence. First, when banks observe election outcomes that suggest greater impending political credit-allocation influence, they reduce capital to increase fragility and deter political influence. Second, banks subject to greater political influence nonetheless increase lending that politicians favor, and household consumption consequently increases. Third, these banks exhibit poorer post-lending performance. Our study has implications for the interaction between politics, household consumption, and bank risk through a specific channel—the interplay between credit-allocation regulation and bank capital structure. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.04056. [ABSTRACT FROM AUTHOR]

The debt brake was introduced to limit electoral spending excesses and ensure (debt) sustainability. Although the debt ratio has been reduced, this has come at the cost of an investment backlog and persistent current account surpluses. The reason for this is the household savings surplus that cannot be utilised domestically. If these savings exceed the capital requirements of companies, either government debt or foreign debt inevitably increases. Consequently, the reduction in the debt ratio in recent years has led to higher foreign debt. In light of low interest rates, higher investments will benefit future generations more than lower debt levels. [ABSTRACT FROM AUTHOR]

Aggregated long and short trading risk positions of speculative assets over time are likely to be unequal. This may be because of irrational decisions of traders and investors as well as catastrophic events that lead to pronounce or salient market crashes. Returns of such assets are therefore more likely to have one polynomial tail and one exponential tail. The generalized hyperbolic (GH) skewed Student‐t distribution is known to handle such situations quite well. In this paper, we use generalized autoregressive conditional heteroscedasticity (GARCH) models to empirically show the superiority of the GH skewed Student‐t distribution in forecasting the extreme tail risks of cryptocurrency returns in the presence of substantial skewness in comparison with some competing distributions. Furthermore, we show the practical significance of the GH skewed Student‐t distribution‐based risk forecasts in computing daily capital requirements. Evidence from the study suggests that the GH skewed Student‐t distribution model tends to be superior in forecasting volatility and expected shortfall (ES) but not value‐at‐risk. In addition, the distribution yields higher value‐at‐risk (VaR) exceptions but surprisingly avoids the red zone of the Basel II accord penalty zones and produces lower but optimal daily capital requirements. Therefore, in the presence of substantially skewed returns having exponential‐polynomial tails, we recommend the use of the GH skewed Student‐t distribution for parametric GARCH models in forecasting extreme tail risk. [ABSTRACT FROM AUTHOR]

Bank capital stands at the heart of banking regulation aimed at curbing bank risk-taking. This paper examines the impact of the Chinese version of Basel III capital regulation on bank risk-taking in China, by applying panel regressions to a large sample of Chinese commercial banks. Our findings indicate that more Tier 2 contingent convertible (CoCo) bonds as capital instruments in the capital composition may paradoxically increase, rather than decrease, bank risk-taking. This effect is robust to instrumental variable estimation. A channel analysis reveals that this unintended effect primarily arises from a leverage effect. This is due to the strong debt attributes of Chinese Tier 2 CoCo bonds, leading to lower core capital levels. Conversely, no evidence is found for the franchise value effect as a significant driver. Lastly, we confirm that capital constraints influence banks' capital adjustments and asset risk allocation aligning with regulatory aims. Our paper has significant policy implications for financial regulation, shedding light on the efficacy of Basel III capital regulation while highlighting the limitations of Tier 2 CoCo bonds as capital instruments in China. [ABSTRACT FROM AUTHOR]

The goal of this research is to investigate whether taxation affects the leverage decisions of banks and if the response of leverage to tax increases depends on profit-shifting opportunities available to individual banks. This topic remains controversial since it is often believed that banking regulation is such an essential driver of leverage choices that little room is left for other considerations studied in the corporate finance literature. Using a difference-in-differences setup encompassing the period from 2006 to 2017, we exploit two exogenous income tax rate increases applicable to 225 Brazilian banks, employing novel identification strategies based on the intricacies of local taxation rules and on the distinctions between individual banks and financial conglomerates. We find stark differences in the behavior of banks around the two events, with a substantial increase in leverage following the first tax hike but no leverage response following the second. In addition, we find no evidence of heterogeneous effects based on the amount of profit-shifting opportunities available to individual banks. Regulatory concerns possibly became more relevant for leverage decisions during the period around the second tax hike because it coincided with the implementation of stricter capital requirements associated with the Basel III framework. Taken together, our results suggest that financial institutions balance considerations regarding the tax-shield benefits of debt against regulatory concerns specific to the banking industry when making capital structure choices. [ABSTRACT FROM AUTHOR]

This research paper presents a comprehensive analysis of three prominent volatility and dependence models for financial time series: ARMA-GARCH, GARCH-EVT, and DCC-GARCH. These models are employed to assess and forecast capital requirements for life and non-life insurer investments. This study evaluates the models' performance in forecasting Value-at-Risk, using daily data on key Thai financial indicators (representing permissible insurer investment assets) from March 2009 to March 2024. Specifically, 1-day and 10-day VaR forecasts are generated using the ARMA-GARCH and DCC-GARCH models, while the ARMA-GARCH-EVT model is employed for 1-day VaR forecasting. Our findings indicate that the ARMA-GARCH model effectively captures time-varying volatility, while the GARCH-EVT approach enhances tail risk estimation, particularly relevant for stress testing. Additionally, the DCC-GARCH model allows for the examination of dynamic conditional correlations between assets, providing insights into portfolio diversification benefits. Rigorous backtesting procedures, employing Kupiec and Christoffersen tests with a rolling window of 1,000 out-of-sample observations, confirm that the majority of models accurately forecast VaR at their respective horizons, with only a very small subset of 10-day VaR models exhibiting limitations. These results highlight that ARMA-GARCH, ARMA-GARCH-EVT, and DCC-GARCH models offer insurers robust tools for estimating minimum capital requirements, forecasting investment risk, and guiding strategic asset allocation decisions. This research underscores the effectiveness of these models for practical application in the insurance industry while also emphasizing the importance of continued model validation, particularly for extended forecasting horizons. Doi: 10.28991/ESJ-2024-08-06-03 Full Text: PDF

Purpose – This research aims to evaluate the accuracy of several Value-at-Risk (VaR) approaches for determining the Minimum Capital Requirement (MCR) for Islamic stock markets during the pandemic health crisis. Design/methodology/approach – This research evaluates the performance of numerous VaR models for computing the MCR for market risk in compliance with the Basel II and Basel II.5 guidelines for ten Islamic indices. Five models were applied—namely the RiskMetrics, Generalized Autoregressive Conditional Heteroskedasticity, denoted (GARCH), fractional integrated GARCH, denoted (FIGARCH), and SPLINE-GARCH approaches—under three innovations (normal (N), Student (St) and skewed-Student (Sk-t) and the extreme value theory (EVT). Findings – The main findings of this empirical study reveal that (1) extreme value theory performs better for most indices during the market crisis and (2) VaR models under a normal distribution provide quite poor performance than models with fat-tailed innovations in terms of risk estimation. Research limitations/implications – Since the world is now undergoing the third wave of the COVID-19 pandemic, this study will not be able to assess performance of VaR models during the fourth wave of COVID-19. Practical implications – The results suggest that the Islamic Financial Services Board (IFSB) should enhance market discipline mechanisms, while central banks and national authorities should harmonize their regulatory frameworks in line with Basel/IFSB reform agenda. Originality/value – Previous studies focused on evaluating market risk models using non-Islamic indexes. However, this research uses the Islamic indexes to analyze the VaR forecasting models. Besides, they tested the accuracy of VaR models based on traditional GARCH models, whereas the authors introduce the Spline GARCH developed by Engle and Rangel (2008). Finally, most studies have focus on the period of 2007–2008 financial crisis, while the authors investigate the issue of market risk quantification for several Islamic market equity during the sanitary crisis of COVID-19.

According to Ball's principles, the most important weakness and shortcoming in the banking sector is the lack of financial resources and lending by banks to other economic sectors. Banks need liquidity to cover fluctuations and expected or unanticipated changes in balance sheet items, as well as to attract new resources for allocation and as a result to earn income. In this regard, in this research, the asymmetric effects of banking monetary law requirements on lending and financial stability of banks admitted to the Tehran Stock Exchange have been investigated. For this purpose, the data of 19 selected banks and financial institutions were used during the period of 2012-2020. The findings of the research showed that the banking monetary law and capital requirements had negative and significant effects on bank lending. It was also observed that the banking monetary law and capital requirements had positive and significant effects on the financial stability of banks. Finally, it was observed that there is a symmetrical convergence relationship between lending power and banking stability with capital requirements and banking monetary law. [ABSTRACT FROM AUTHOR]

Copyright of Service Industries Journal is the property of Routledge and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper incorporates mortality shocks in the scenarios for future mortality rates produced by a stochastic multi‐population mortality model. Hereto, the proposed model combines a decreasing stochastic mortality trend with a mechanism that switches between regimes of low and high volatility. During the high volatility regimes, mortality shocks occur that last from one to several years and temporarily impact the mortality rates before returning to the overall mortality trend. Furthermore, we account for the age‐specific impact of these mortality shocks on mortality rates. Actuaries and risk managers can tailor this scenario generator to their specific needs, risk management objectives, or supervisory requirements. The generated scenarios allow (re)insurers, policymakers, or actuaries to evaluate the effects of different catastrophe risk scenarios on, for example, the calculation of solvency capital requirements. [ABSTRACT FROM AUTHOR]

The study examines the Green Preferential Capital Requirement Programmes of the Magyar Nemzeti Bank, with a special focus on their extension, and presents the information on which the decision is based, the theoretical background of the programmes, the international regulatory environment, the mechanism of the preferential capital requirement and the results of the programmes. The results and feedback from market participants suggest that the preferential capital requirement programmes have a market and institutional development impact across the financial institutions system. From a prudential perspective, the green preferential capital requirement programmes did not have a material negative impact: they reduced banks' capital requirements by up to 0.31 per cent only. In view of the positive results, having been extended for a uniform period, these programmes are expected to continue to encourage green lending. [ABSTRACT FROM AUTHOR]

Purpose: Financial inclusion aims to provide affordable financial services, including banking, loans, equity, and insurance products, to underserved populations. This study aims to examine the moderating effect of a bank's capital adequacy ratio (CAR) on the nexus between financial inclusion (FI) and a bank's financial performance (FP) in the Egyptian setting. Design/methodology/approach: The study uses two empirical linear mixed models (LMM) to test the moderation effect of a bank's CAR on the association between FI and FP. The study sample comprises 360 bank quarter-observations of 10 listed banks in the Egyptian Stock Exchange (EGX) from 2013 to 2021. Findings: The findings show that the bank's CAR strengthens the association between FI dimensions, namely, deposit growth, loan growth, and the number of employees, and the bank's FP with contradicted directions. Research limitations/implications: This study provides policymakers insights into the crucial role of complying with banking regulation, namely, the capital adequacy ratio (CAR) and expanding financial inclusion practices to enhance and improve the bank's FP. Thus, encouraging more strategies and facilities toward financial inclusion. Originality/value: Due to the scarcity of financial inclusion literature in emerging economies, this paper extends FI literature by highlighting the moderation impact of a bank's CAR on the relationship between FI dimensions and FP in the Egyptian banking sector. Consequently, this study clarifies this beneficial relationship, which may have significant implications for restoring the challenges faced by the Egyptian economy following the critical events it went through, which, in turn, impacted the country's poor and vulnerable. [ABSTRACT FROM AUTHOR]

Generally, insurance companies face challenges in determining the Capital Requirement (CR) which is essential for business continuity. This situation could worsen if substantial number and amount of claims are requested by policyholders due to losses from catastrophic events such as floods, tsunamis, and earthquakes. In this paper, we propose a structured model to determine the CR for non-life insurance companies through loss ratios. Firstly, dependence structure among the business lines is modelled using copulas from both Elliptical and Archimedean copulas family with loss ratios from four business lines as the risk factors. The loss ratios are derived from incurred claims and earned premiums data of Malaysia’s non-life insurance businesses, such as Fire insurance, Motor insurance, Marine, Aviation and Transport (MAT) insurance, and Miscellaneous insurance. Subsequently, a combination of popular risk measures such as Value-at-Risk (VaR) and TailValue-at-Risk (TVaR) with a Drawable Vine (D-Vine) copulas model known as hybrid model is developed to estimate insurance companies’ risk capital. Finally, a simulation of Monte Carlo is commanded by calibrating data with our selected model to project the CR. This study contributes to the literature by addressing the problem of determining the appropriate CR for non-life insurance companies, proposing an empirical model based on real non-life insurance company data with a hybrid model built from risk measures and D-Vine copula. [ABSTRACT FROM AUTHOR]

We analyse the effects of changes in regulatory capital requirements under Basel III on the dynamic evolution of bank shareholder equity over time. Evidence from managerial and regulatory reports shows that bank shareholder equity stands between micro-prudential regulatory capital requirements and managerial pursuit of equity economising strategies. Shareholder value strategies see shareholders as the equity investment remuneration recipients. Micro-prudential regulators, in turn, address them as equity investment providers. With opposing cash streams, one orientation puts the other to a test. The article visualises this conflict by analysing the actual shareholder contribution to the bank equity position in nine case studies of European financial institutions between 2001 and 2017; our evidence-based financial analysis applies an innovative method to data directly extracted from financial statements, in order to measure this equity position evolution and assess bank equity dynamics in light of revised regulatory capital requirements and persistent assurance of shareholder value thriving in managerial reports. The choice of in-depth analysis of a sample of relevant case studies overcomes the absence of detailed data on changes in bank equity in existing databases. [ABSTRACT FROM AUTHOR]

We show that the supply of U.S. life annuities is constrained by interest rate risk. We identify this effect using annuity prices offered by life insurers from 1989 to 2019 and exogenous variations in contract-level regulatory capital requirements. The cost of interest rate risk management—conditional on the effect of adverse selection—accounts for about half of annuity markups, or 8 percentage points. The contribution of interest rate risk to annuity markups sharply increased after the Global Financial Crisis, suggesting new retirees' opportunities to transfer their longevity risk are unlikely to improve in a persistently low interest rate environment. [ABSTRACT FROM AUTHOR]

Objective-- The primary aim of this study is to investigate the effect of dynamic working capital (DWC) management on operational efficiency through operating expenses and operating margins across non-financial firms in emerging markets. Methodology/Technique -- This study utilized generalized method of moments (GMM) to evaluate a comprehensive dataset of 438 firms from Indonesia, Malaysia and Thailand for the period 2018 to 2023. Findings -- DWC is measured study using both cash conversion cycle (CCC) and working capital ratio (WCR). Results show that optimized DWC management reduces operating expenses (OER) and increases operating margins (OMR). These findings highlight the importance of efficient working capital practices and liquidity management in emerging markets. Novelty -- This study provides valuable insights for financial managers in emerging countries, advocating focused strategies on working capital cycles to strengthen operational efficiency and profitability. Type of Paper: Empirical [ABSTRACT FROM AUTHOR]

We collected over 1600 estimates on the relationship between bank capital and lending and construct 40 variables to capture the context in which these estimates are obtained. Accounting for potential publication bias, we find that a 1 percentage point (pp) increase in capital (regulatory) ratio results in around 0.3 pp increase in annual credit growth, while changes to capital requirements cause a decrease of around 0.7 pp. Using Bayesian and frequentist model averaging, we show that the relationship between bank capital and lending changes over time, reflecting the post‐crisis period of increasingly demanding bank capital regulation and subdued profitability. We also find that the reported estimates of semi‐elasticities are significantly influenced by the empirical approach chosen by researchers. Our findings suggest that the literature fails to provide policymakers with reliable estimates of the effects of capital regulation on bank lending, and our study offers insights that could help guide future research. [ABSTRACT FROM AUTHOR]

Copyright of Informacion Comercial Espanola Revista de Economia is the property of S.G.E.E.I.P.C., Secretaria de Estado de Comercio, Ministerio de Industria, Comercio y Turismo and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper aimed to investigate the effects of government borrowing banks' capital structure using a sample of banks registered in South Africa from 2012 to 2021. Despite the extensive literature on this association, few prominent researchers have studied this phenomenon in the banking sector. Applying the generalised method of moments (GMM) model, the study established a positive but significant effect on the South African banks' capital structure from total government borrowing, local government borrowing and foreign government borrowing, and capital structure. Contrary to the crowding-out effects detected, the results revealed a positive and significant relationship between government borrowing and banks' capital structure. The crowding-in effect better explains these results, where government borrowing stimulates the local market for goods and services, motivating banks to borrow more in order to meet the demand for loans. Future research should test the cointegrating and causality relationship between government borrowing and bank capital structure. Also, given that the banking sector is constrained by Basel III's capital adequacy requirement, controlling for this factor is critical in future research. [ABSTRACT FROM AUTHOR]

The Federal Reserve is currently in the process of reducing the size of its balance sheet. Major questions, especially in light of the surprising impact of its 2019 reductions, are what its ultimate size will be. Many factors will play into that, including the interaction of bank capital and liquidity requirements with the size of reserves and the impact on the ability of the private market to absorb Treasury debt issuance, the willingness of banks to regularly use the discount window and other market participants to borrow at the standing repo facility, as well as the ongoing risk that a large Fed balance sheet can generate large losses to the System. [ABSTRACT FROM AUTHOR]

Purpose: Climate change poses effect on banking sector's risks and profitability through adaptation of green technology. This study aims to incorporates green technology adaptation in three sectors: green banking, green entrepreneurial innovation (EI) and green human resource (HR), in a model of bank's performance. And determines the impact of climate change on bank risk and profitability. Design/methodology/approach: An assessment of profitability and risk profile of commercial banks is done for 27 European countries for 2013–2022, employing a two-step difference system-generalized method of moments estimation technique with a moderate effect of climate change by including interaction between climate change and green technology adaptation. Findings: The results indicate that green banking increases profitability, reduces credit risk and increases liquidity risk. The results also show that green human resource increases profitability and becomes a source of credit and liquidity risks for the banks. Green EI increases credit risk and liquidity risk, while the effects of green EI on profitability vary with the use of two proxies: Green patents increase profitability and environment, social and corporate governance (ESG) scores decrease profitability. Practical implications: Supportive government initiatives, including subsidies and tax rebates to green borrowers, may take the burden of green transition off the banking sector. Originality/value: This paper observes the impact of green technology adaptation in three sectors: banks, EI and HR, moderated by climate change, adding substantially to the existing literature in conceptual framework and methodology. [ABSTRACT FROM AUTHOR]

Copyright of Business Intelligence Management Studies is the property of Allameh Tabatabai University and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The main objective is to find out the impact of the Tax Credit (ITC) in the GST structure on the utilitarian capacity and liquidity of micro, small and medium-sized enterprises (MSMEs) in India. Using a coordinated survey to gather information on working capital stocks and GST consistency, 200 MSMEs in Assam, India, were selected to conduct a quantitative assessment. The results show that there are significant areas for the relationship between better working capital conditions and the use of ITS. This suggests that MSMEs can have greater financial flexibility and fewer pay restrictions if they do register ITC claims. According to the practical implications of the assessment, policymakers should deal with the ITC system and offer additional assistance to ensure that MSMEs can fully benefit from the GST. This study is novel because it is uniquely relevant to the state of Assam, offering alternative, progressive views on the specific impact of the goods and services tax on small businesses in that state. [ABSTRACT FROM AUTHOR]

Since 2016, the Basel Committee on Banking Supervision has regulated banks to switch from a Value-at-Risk (VaR) to an Expected Shortfall (ES) approach to measuring the market risk and calculating the capital requirement. In the transition from VaR to ES, the major challenge faced by financial institutions is the lack of simple but powerful tools for evaluating ES forecasts (i.e., backtesting ES). This article first shows that the unconditional backtest is inconsistent in evaluating the most popular Historical Simulation (HS) and Filtered Historical Simulation (FHS) E S models, with power even less than the nominal level in large samples. To overcome this problem, we propose a new class of conditional backtests for E S that are powerful against a large class of alternatives. We establish the asymptotic properties of the tests, and investigate their finite sample performance through some Monte Carlo simulations. An empirical application to stock indices data highlights the merits of our method. [ABSTRACT FROM AUTHOR]

Purpose: The study seeks to evaluate the effect of capital adequacy and competition on the liquidity creation of Kenyan commercial banks. Design/methodology/approach: Unbalanced panel data from 36 Kenyan commercial banks with licenses from 2001 to 2020 is used in the study. The generalized method of moments (GMM), a two-step system, is employed in the investigation. To increase the robustness and prevent erroneous findings, serial correlation tests and instrumental validity analyses are used. The methodology developed by Berger and Bouwman (2009) is used to estimate the commercial banks' levels of liquidity creation. Findings: The study supports the financial fragility-crowding out hypothesis by finding a significant negative effect of capital adequacy on the liquidity creation of commercial banks. The research also identifies a significant inverse relationship between competition and liquidity creation, depicting competition's value-destroying effect. Practical implications: A trade-off exists between capital adequacy and liquidity creation, which must be carefully evaluated as changes in capital requirements are considered. The value-destroying effect of competition on liquidity creation presents a case for policy geared toward consolidating banks' operations through possible mergers and acquisitions. Originality/value: To the best of the authors' knowledge, this is the first study to empirically offer evidence concurrently on the effect of competition and capital adequacy on the liquidity creation of commercial banks in a developing economy such as Kenya. Additionally, the authors employ a novel measure of competition at the firm level. [ABSTRACT FROM AUTHOR]

Companies rely on creditors for funding to operate, making it crucial to have legislative and procedural frameworks that protect the interests of these creditors. This article engages in a comparative analysis of corporate creditors' protection rights on a global scale, emphasizing the Ethiopian case. The study contends that while countries may adopt distinct approaches to safeguard corporate creditors, and variations may exist in the strictness of rules across different strategies, nations have a universal commitment to implement strategies to ensure adequate protection for creditors' interests. Notably, the study underlines that, amid the surge in globalization and cross-border commerce, strategies for corporate creditor protection are progressively aligning and converging worldwide, signaling a positive trend in global business dynamics, and the Ethiopian case is not an exception. This convergence reflects a harmonized effort across nations to establish a consistent and practical framework for protecting corporate creditors' interests in the contemporary globalized economic landscape. [ABSTRACT FROM AUTHOR]

AbstractFinancial risk has received increasing attention from policymakers and financial institutions. Therefore, the present study examines the relationship between capital and risk for Jordanian banks by using data from 2010–2019. The study employs fixed effect, random effect, GMM, and 3SLS. Our findings show that the capital requirement regulation has a positive impact on capital and risk rates. Moreover, the study also concludes that Jordanian banks hold more than the minimum regulatory capital requirements laid down by Basel II, III, and the CBJ. The banking sector increases its capital adequacy by raising its liquidity and reducing its tendency to take risks. Our results indicate a highly significant negative relationship between Jordanian commercial bank capital and risk. Liquidity risk, ROA and stock market capitalization are positively related to bank capital. The results of the study suggest that Jordanian banks should be involved in higher-risk lending actions and help increase competition in the banking sector.

We study capital requirement regulation in a dynamic quantitative model in which nonfinancial firms, as well as households, hold deposits. A novel general equilibrium channel that operates through firms deposits mitigates the cost of increasing capital requirements. In the calibrated model, (a) the optimal capital requirement is 7.3 percentage points higher than in a comparable model in which all the deposits are held by households, and (b) setting the capital requirement higher than the true optimum is not as costly as one would gauge from the comparable model. We also provide some independent evidence that supports our novel channel. [ABSTRACT FROM AUTHOR]

We analyze the effects of a reform of capital regulation for U.S. insurance companies in 2009. The reform eliminates capital buffers against unexpected losses associated with portfolio holdings of MBS, but not for other fixed-income assets. After the reform, insurance companies are much more likely to retain downgraded MBS compared to other downgraded assets. This pattern is more pronounced for financially constrained insurers. Exploiting discontinuities in the reform's implementation, we can identify the relevance of the capital requirements channel. We also document that the insurance industry crowds outs other investors in the new issuance of (high-yield) MBS. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

The risk of lending money collected from savers is that it leaves banks liable to default with depositors if events (and hence repayment demands) become 'abnormal'. Even though international and national regulation has been introduced to ensure that a certain level of capital is retained by banks, such regulation can be subverted. The current system of international regulation based on the Basel III agreements does not stipulate a standardised approach for inspection frequency or penalty magnitude. This leaves the potential for regulatory arbitrage. The scientific value of an analysis to optimise regulatory efficiency and reduce such arbitrage is therefore considerable. This work therefore assesses the results of the empirical testing of a model based on the Von Neumann–Morgenstern utility function and consequently proposes that this model be used as a basis for standardising capital adequacy limit infraction penalties on an international level to prevent regulatory arbitrage. A survey is undertaken in order to test the responses of participants on the level of penalty which would deter them from regulatory transgression under different theorised levels of profit and probability of discovery. Based on the responses of two distinct subject groups ('bankers' and 'non-bankers') in different scenarios of hypothetical capital adequacy violation, the Von Neumann–Morgenstern utility function is reviewed against empirical results and revealed to show a semi-strong correlation. Lastly, the analysis reveals the striking similarities of the two groups' responses, posing regulatory implications for the industry. [ABSTRACT FROM AUTHOR]

This paper examines whether the influence of banking regulation on banks' risk is channeled through the quality of political institutions. As banking regulatory factors, we consider capital stringency, activity restrictions and supervisory power. The overall effect of banking regulation on banks' risk is conditional on the quality of political institutions. Activity restrictions and capital stringency have a statistically significant positive effect on banks' risk. This effect is mitigated by better political institutions. In contrast, stringent supervisory power tends to reduce banks' risk, and better political institutions reinforce this effect. The results are robust for alternative estimation methods and risk measures. [ABSTRACT FROM AUTHOR]

This study examines the determinants of bank profitability using a quantile regression approach, offering insights into factors affecting banks across different percentiles of profitability. Utilizing a comprehensive database from Orbis covering 1200 top-market institutions across 101 countries, the research uniquely employs dynamic panel quantile regression while addressing sample survival bias. Our findings highlight that bank size and capital adequacy negatively impact profitability, whereas market value exerts a positive influence on higher profitability banks. Credit risk affects profitability differently across levels of profitability, and inflation rate shows significance only for higher profitability banks. The study contributes to the existing literature by offering valuable insights into the factors determining bank profitability and how they behave at different percentiles in the sample, suggesting the importance of bank efficiency and competition in promoting economic growth. [ABSTRACT FROM AUTHOR]

Credit risk plays a key role in financial modeling, and financial institutions are required to incorporate it in their pricing, as well as in capital requirement calculations. A common manner to extract credit worthiness information for existing and potential counterparties is based on the Credit Default Swap (CDS) market. Nonetheless, not all counterparties of a financial institution have (liquid) CDSs traded in the market. In this case, financial institutions shall employ a proxy methodology to estimate the default probabilities of these counterparties. Starting from the intersection methodology for credit curves, in this article we investigate whether it is possible to construct proxy credit curves from CDS quotes by means of (weighted) Wasserstein barycenters. We show how, under simple and common assumptions, this revised methodology leads to elementary and intuitive formulae to calculate distances between CDS-implied default probability distributions. Further, we illustrate how to use this information to construct proxy CDS quotes. [ABSTRACT FROM AUTHOR]

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In this study, we examine whether and how banks employ dividend payout policies in response to the risk of stock price crashes. Using a sample of U.S. banks, we find that banks increase their dividend payouts when faced with a higher risk of stock price crashes. In addition, we find that well-capitalized banks tend to pay more dividends when the risk of a stock price crash is elevated. This aligns with the regulatory pressure theory that banks distribute dividends when they have sufficient capital that meets or exceeds the regulatory standards. This is also in line with the signaling theory that dividend payments reflect a bank's confidence in its financial health. Furthermore, we find that financially opaque banks tend to make more dividend payments when they are at a higher risk of stock price crashes. This supports the agency cost theory, suggesting that dividends counterbalance the need to monitor bank managers in less transparent reporting environments. [ABSTRACT FROM AUTHOR]

Glycerol carbonate (GC) is one of the most attractive green chemicals involved in several applications such as polymer synthesis, e. g., the production of polyurethanes and polycarbonates. This relevant chemical can be produced, in a green way, using CO2 (from carbon capture) and glycerol (a byproduct from biodiesel manufacturing). Therefore, in this work, a comprehensive analysis of the GC production process is conducted based on the following synthesis route: urea‐dimethyl carbonate‐GC using carbon dioxide and glycerol as the main raw materials where the synthesis pathway was efficiently integrated using Aspen Plus. A techno‐economic analysis was performed in order to estimate the required capital investment and operating cost for the whole GC process, providing insights on individual capital cost requirements for the urea, dimethyl carbonate, and GC production sections. A total capital cost of $192.1 MM, and a total operating cost of $225.7 MM/y were estimated for the process. The total annualized cost was estimated as $1,558 USD/t of GC produced, competitive with current market price. [ABSTRACT FROM AUTHOR]

The traditional modeling of dependence among branches in non-life insurance has historically rested on the assumption of independence between risks. However, recent studies have brought to light that overlooking the interdependence between risks is not prudent. An illustrative example is found in automobile insurance, where a discernible connection exists between the number of claims in the Automobile Damage branch and those in the Automobile Civil Liability branch. This paper aims to delve into the utilization of copula functions for modeling the interrelationships among claims charges across diverse branches within a non-life insurance portfolio. Moreover, it seeks to assess the consequential impacts of these dependencies on the capital requirements of AXA Insurance in the Moroccan market. Our research concentrates on four pivotal branches within AXA Insurance, namely "work accidents", "automobile civil liability", "disability", and "fire, marine, aviation, and transport". Through a thorough analysis encompassing dependency measurements, independence tests, and various graphical representations, we have substantiated the existence of interdependencies among the claim costs associated with these four risk branches. Importantly, our findings underscore that assuming independence leads to a slight underestimation of the capital requirement needed for effective risk accumulation management by the insurer. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this paper is to fill the momentous gap by explicitly investigating the asymmetric effects of monetary policy (MP) on non-bank financial intermediation (NBFI) assets. Design/methodology/approach: The authors utilized panel data from 29 countries for the period of 2012–2020 and used the quantile regression estimation. In addition to simultaneous quantile regression (SQR), the authors also employ quantile regression with clustered data (Parente and Silva, 2016) and the generalized quantile regression (GQR) method (Powell, 2020). Findings: The empirical results show a significant heterogeneous impact of MP. While there is a positive relationship between MP and NBFI assets ("waterbed effect") at lower quantiles of NBFI assets, at middle and higher quantiles, MP has a negative impact on NBFI assets ("search for yield" effect). The authors further find that negative impact strengthens as the quantile levels of NBFI assets rise from mid to high. Findings also reveal that "procyclicality" (except higher quantile) and "institutional demand" hypotheses hold. However, regarding "regulatory arbitrage," mixed results are observed indicating the impact of Basel III requirements. Originality/value: Previous empirical studies have concentrated on either the Dynamic Stochastic General Equilibrium (DSGE) framework or conditional mean regression approaches and delivered mixed findings of the MP effects on NBFI. The current paper takes a step toward dealing with this issue by deploying quantile regression methodology, which shows the impact of MP on NBFI at different conditional distributions (quantiles) of NBFI assets instead of just NBFI's conditional mean distribution. [ABSTRACT FROM AUTHOR]

In a context of economic volatility, multiple crises, and growing environmental concerns, the optimization of physical and financial flows has become imperative for businesses. In a classical Inventory Routing Problem (IRP), only the physical flow of goods is considered. This paper introduces a link between a two-echelon Inventory Routing Problem and the financial flows of the Working Capital Requirement, where the products are dispatched from warehouses to fulfill customer demand. We propose a two Echelon Inventory Routing Problem under Working Capital Requirement (2E-IRP-WCR) model which allows us to evaluate the integration of physical and financial flows so as to further reduce the total cost, where the total cost consisting of ordering and inventory costs, transportation costs and financial costs. Numerical tests, established for multi-suppliers, multi-warehouses, multi-customers, single-product and finite capacity cases, are presented to demonstrate the pertinence of our approach. [ABSTRACT FROM AUTHOR]

The adequacy of capital has become a concerned issue because banks being the highly leveraged sector face high risks. So, it is desirable to know at which level of capital is adequate for banks. The focus on capital have existed for a long time but now the definition of capital has changed for banking business due to changes and advancement in banking operations. A bank with higher capital adequacy ratio is considered safe and capable to meet its obligations. The Reserve Bank of India requires all scheduled commercial banks to meet the capital level as stipulated under Basel III norms to comply with international standards. According to the guidelines of Bank for International Settlements (BIS), the banks should maintain that level of capital where a bank can easily recover unexpected shocks and crisis. The adequacy of capital is the measure of financial soundness of banks and indicator of financial health of banks. The banking activities are exposed to various kinds of risks and to manage these risks, banks must maintain sufficient capital. Therefore, it is necessary to set the regulatory guidelines for limits of capital hold by banks. Thus, the present study intends to examine the trends and consistency of capital adequacy ratio of twenty one Indian public sector banks for the period of ten years (2008–2017). The results conclude that the level of capital ratio as per Basel III norms maintained by Indian public sector banks determines the bank’s strength and position. [ABSTRACT FROM AUTHOR]