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Benjamin M Tabak, Dimas M Fazio, Regis A Ely, Joao M. T. Amaral and Daniel O Cajueiro
''The effects of capital buffers on profitability: An empirical study''
( 2017, Vol. 37 No.3 )
This paper measures the effect of capital buffers and other determinants on banks' profitability in 51 countries during the period of 2000 to 2012. We have found a nonlinear relationship between return on assets and capital buffers. While capital buffers have a positive impact on profitability, its excess can diminish banks' profits. Countries with non-competitive markets do not seem to change this relationship, although higher market power enhances profits. We also examine other determinants of profitability. Since minimal requirements of equity capital are one of the main regulatory instruments for preventing financial risks, we hope that the results of this letter can help financial authorities to also understand the effects of capital buffers on profits.
Keywords: capital buffer, profitability, banking regulation.
JEL: G2 - Financial Institutions and Services: General
Manuscript Received : Dec 06 2016 Manuscript Accepted : Jul 02 2017

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