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Review of Quantitative Finance and Accounting

, Volume 52, Issue 2, pp 347–380 | Cite as

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

  • Anachit BagntasarianEmail author
  • Emmanuel Mamatzakis
Original Research
  • 187 Downloads

Abstract

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.

Keywords

Capital buffer Dynamic threshold Performance Bank default risk 

JEL Classification

G20 G21 G28 

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Nottingham Business SchoolNottingham Trent UniversityNottinghamUK
  2. 2.Rennes School of BusinessRennesFrance
  3. 3.Department of Finance, School of Business, Management and EconomicsUniversity of SussexFalmerUK

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