Basel III and Perceived Resilience of Banks in the BRICS Economies

28 Pages Posted: 25 Feb 2018 Last revised: 10 May 2018

See all articles by Md Zakir Hossain

Md Zakir Hossain

UWA Business School

Md. Atiqur Rahman Khan

Rajshahi University - Dept. of Finance

M. Shibley Sadique

Rajshahi University

Date Written: February 13, 2018

Abstract

This study investigates how the additional capital and liquidity requirements of Basel III would increase the resilience of banks. In particular, using panel data from 2007 to 2014, we examine the resilience of banks in the BRICS economies. Our results suggest that a 10% increase in capital adequacy ratio (CAR), Tier 1 capital ratio (TRA), and leverage ratio (LEV), the resilience (as measured by Z-Score of banks) increases by about 2.18, 0.89 and 1.31%, respectively. Similarly, for a 100% increase in liquidity coverage ratio (LCR), the resilience of banks increases by 0.51%, 1.10% and 1.19%, respectively, in the models associated with CAR, TRA, and LEV. Hence, our findings suggest that the CAR is robust to increase the resilience of banks. Our study also reveals that the LCR and LEV are the most effective to increase the resilience of banks if implemented simultaneously. We also find that the stage of economic development does not matter in formulating policies for the BRICS economies, and finally, we provide empirical evidence that economy-wide risk, such as a financial crisis, does not affect the resilience of banks and it influences the resilience of banks in the BRICS economies in the same way before and after the crisis.

Keywords: Financial regulation; bank; capital adequacy; resilience; BRICS

JEL Classification: G21; G28; G29

Suggested Citation

Hossain, Md Zakir and Khan, Md. Atiqur Rahman and Sadique, M. Shibley, Basel III and Perceived Resilience of Banks in the BRICS Economies (February 13, 2018). Applied Economics, Vol. 50, No. 19, 2018 (DOI 10.1080/00036846.2017.1391999), Available at SSRN: https://ssrn.com/abstract=3123107

Md Zakir Hossain

UWA Business School ( email )

School of Business
35 Stirling Highway
Crawley, WA Western Australia 6009
Australia
(+61 8) 6488 2780 (Phone)

HOME PAGE: http://www.business.uwa.edu.au/

Md. Atiqur Rahman Khan (Contact Author)

Rajshahi University - Dept. of Finance ( email )

Rajshahi
Rajshahi, 6205
Bangladesh
+8801914254354 (Phone)

M. Shibley Sadique

Rajshahi University ( email )

Motihar Chattar, Boalia
Rajshahi, Rajshahi 6205
Bangladesh

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