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Essays on Banking and the Transmission of Monetary Policy
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| 1.29 MB | Adobe PDF |
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Resumo(s)
The purpose of this paper is to shed light on why Portuguese banks hold significant capital buffers above the required regulatory minimum, despite the fact that capital is a relatively expensive source of financing compared to deposits or bonds. The level of banks’ capital buffers is found to be positively influenced by several broad risk measures, indicating that banks tend to hold extra capital in order to cover for increased risk. Loan loss provisions and high and stable profitability are found to be substitutes for capital buffers. Larger banks seem to hold less excess capital, which could be linked with higher portfolio diversification and technological advantages in screening and monitoring activities, but also with moral hazard associated with higher expectations of public support against the background of the “too-big-to-fail” hypothesis. A negative business cycle effect is also found, suggesting that the lending cycle may be pro-cyclical.
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Palavras-chave
Banking Excess Capital Risk Panel Data