The Level of Capital and the Value of EU Banks under Basel III
| Author(s): | prof. PhDr. Petr Teplý Ph.D., PhDr. Barbora Šútorová |
|---|---|
| Type: | Articles in journals with impact factor |
| Year: | 2014 |
| Number: | 2 |
| ISSN / ISBN: | 1210-0455 |
| Published in: | Prague Economic Papers, Czech Republic |
| Publishing place: | Prague, Czech Republic |
| Keywords: | bank, Basel III, capital, fixed effects methodology, market value, regulation |
| JEL codes: | G18, G21, G32 |
| Suggested Citation: | Šútorová, B., Teplý, P. (2014), “The Level of Capital and the Value of EU Banks under Basel III.“ Prague Economic Papers, Vol. 23, No. 2, pp. 143–161. |
| Grants: | GACR 14-02108S The nexus between sovereign and bank crises VŠE IP100040 |
| Abstract: | The 2007-2009 global fi nancial turmoil was exacerbated by a low level of fi nancial market regulatory coordination. Historical experience has shown that despite implementing regulations, supervision and macroeconomic policies, the financial industry regularly experiences crises. Consequently, a similar impact might be expected from the Basel III new bank regulatory framework. The aim of this paper is two-fold; in the fi rst part dedicated to theory we describe the Basel III regulatory standards and argue that this regulation is not suffi cient and will not prevent fi nancial markets from experiencing future crises. Moreover, we discuss implementation of new banking regulation in Europe: the Capital Requirements Directive IV and stricter capital requirements for European banks set by the European Banking Authority in 2011. In the second part, we focus on an empirical analysis of the impact of stricter capital requirements as defi ned in the Basel III framework on the market value of European banks. Our analysis employs the fi xed effects methodology on the fi nancial data collected from 172 banks listed on European stock exchanges during the 2005-2011 period. We conclude that the impact of the Basel III regulation on the value of bank shares will probably be perceived negatively by the market, which could be refl ected in a drop in the market value of the observed banks. |
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