Testing for the underlying dynamics of bank capital buffer and performance nexus

Anachit Bagntasarian (1) , Emmanuel Mamatzakis (2)

1 University of Sussex
2 ESC [Rennes] - ESC Rennes School of Business

This paper reveals the underlying dynamics between the capital buffer and bank performance in EU-27 countries. A dynamic panel analysis shows that capital buffer is significantly affected by bank performance and risk exposure. Remarkably, a threshold analysis identifies regime changes for the underlying relationships during the financial crisis of 2008. We find a positive relationship between the capital buffer and performance for banks that fall in the low performance regime, while a negative relationship is reported for the banks that belong to the high regime. Threshold results also show that buffer exerts a positive impact on bank performance. Although regulation reforms that aim to raise the capital requirements could improve bank performance and stability, these improvements are not homogeneous across banks.

Mots clés: Capital buffer; Dynamic threshold; Performance; Bank default risk

Domaines: Économie et finance quantitative [q-fin]; Finance quantitative [q-fin.CP]

Anachit Bagntasarian, Emmanuel Mamatzakis. Testing for the underlying dynamics of bank capital buffer and performance nexus. Review of Quantitative Finance and Accounting, 2019, 52 (2), pp.347-380. ⟨10.1007/s11156-018-0712-y⟩. ⟨hal-02127592⟩