How Capital requirement Can Effect Bank Risk: Evidence from Asia

DOI

10.2991/978-2-38476-466-2_6How to use a DOI?

Keywords

Capital Adequacy Ratio; Bank Risk; Capital Buffer; Commercial Banks; Panel Data Analysis

Abstract

This study investigates the impact of capital requirements on bank risk among commercial banks in Asia. Using a panel dataset consisting of 1,624 observations from both listed and unlisted commercial banks across Asian countries over the period 2011 to 2021, we analyze the relationship between capital adequacy and bank risk-taking behavior. The analysis employs panel data regression techniques to examine how variations in the Capital Adequacy Ratio (CAR) influence the level of risk assumed by banks. Our findings reveal that the CAR has a statistically significant effect on bank risk. Specifically, higher capital requirements are associated with a reduction in overall bank risk, supporting the regulatory premise that well-capitalized banks are more resilient and less likely to engage in excessive risk-taking. In addition, the study highlights the importance of capital buffers—defined as the excess capital held by banks above the minimum regulatory requirements—as another significant factor influencing bank risk. Banks with larger capital buffers tend to exhibit lower risk profiles, suggesting that capital cushions provide an added layer of financial stability. These results contribute to the broader understanding of how capital regulation shapes the behavior of financial institutions in emerging and developed Asian markets. The findings have important implications for policymakers and regulators in designing effective capital frameworks that balance financial stability with banks’ operational flexibility. By reinforcing the role of capital adequacy and buffers, this study underscores the importance of prudent capital management in promoting a sound and stable banking sector.

Copyright

© 2025 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Rosananda Oktala
AU  - Isnurhadi Isnurhadi
AU  - Delvina Yulanda
PY  - 2025
DA  - 2025/09/15
TI  - How Capital requirement Can Effect Bank Risk: Evidence from Asia
BT  - Proceedings of the 7th International Conference on Information Technology, Engineering, and Business Applications (ICIBA) and 3rd Social Science & Economic International Conference (SOSEIC 2024)
PB  - Atlantis Press
SP  - 59
EP  - 69
SN  - 2352-5398
UR  - https://doi.org/10.2991/978-2-38476-466-2_6
DO  - 10.2991/978-2-38476-466-2_6
ID  - Oktala2025
ER  -