Banks’ Adjustment to Basel III Reform: A Bank-Level Perspective for Emerging Europe
IMF Working Papers, February 10, 2017
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Bibliographic details
- Authors: Michal Andrle, Vladimír Tomšík, Jan Vlcek
- Published: February 10, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475577525.001
Study objective and sample
- Objective: Identify strategies of commercial banks in response to higher capital requirements of Basel III reform and its phase-in.
- Sample: nine EU emerging market countries; 5 largest banks in each country.
Methodology (scope and focus)
- Bank-level assessment across the selected sample to evaluate adjustments to higher capital-adequacy requirements.
- Focus on changes in capital adequacy ratio (CAR) composition and balance sheet responses.
Key findings
- All banking sectors in the sample raised CAR ratios mainly through retained earnings.
- In countries where the banking sector struggled with profitability:
- Banks resorted to issuance of new equity, or
- Banks shrunk the size of their balance sheets to meet higher capital-adequacy requirements.
- The early-stage concern that banks would shrink lending to meet stricter capital requirements materialized primarily in banks struggling with profitability—not broadly across all banks.
Implications and interpretation
- Retained earnings were the primary adjustment channel to Basel III capital requirements for the sample.
- Profitability constraints determined whether banks pursued equity issuance or balance-sheet contraction as supplementary strategies.
- Policy attention may be warranted for less-profitable banks where adjustment to higher capital requirements can translate into reduced lending and balance-sheet contraction.
Source: IMF Working Paper — “Banks’ Adjustment to Basel III Reform: A Bank-Level Perspective for Emerging Europe”
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- Banks’ Adjustment to Basel III Reform: A Bank-Level Perspective for Emerging Europe