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2. Quality of Bank Capital, Competition, and Risk-Taking

  • 2021
  • OriginalPaper
  • Chapter
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Abstract

This chapter delves into the relationship between bank capital and competitive conditions on bank risk-taking, utilizing a comprehensive dataset from 7620 banks across 118 countries from 2001 to 2016. The study classifies bank capital into Tier 1 and Tier 2, analyzing their distinct effects on risk-taking. It finds that higher Tier 1 capital reduces risk-taking, while higher Tier 2 capital increases it. Competition and market power also significantly influence risk-taking behavior. During the financial crisis, Tier 1 capital acts as a stable funding source, reducing risk, whereas Tier 2 capital increases it. The study highlights the importance of quality capital and the need for balanced regulation to mitigate risk-taking and ensure financial stability.
This chapter was published in Emerging Markets Finance and Trade.

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Title
Quality of Bank Capital, Competition, and Risk-Taking
Author
Shaofang Li
Copyright Year
2021
Publisher
Springer Singapore
DOI
https://doi.org/10.1007/978-981-16-3509-0_2
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