Does prudential capital reduce bank risk-taking? Empirical evidence from the Indonesian banks industry

Salim, Agus and Suripto, Suripto (2023) Does prudential capital reduce bank risk-taking? Empirical evidence from the Indonesian banks industry. [Artikel Dosen]

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Abstract

Abstract: The implementation of macroprudential supervision, significantly tighter capital regulation in developing economies, has recently been debated, which focuses on reducing bank risk-taking and promoting financial stability in the banking sector. Our study investigates the impact of prudential capital on commercial bank risk-taking in Indonesia. We employed a GMM system approach to analyze bank and macro level data from 2004 to 2019. Our result confirms that appropriate capital regulations for reducing bank risk-taking are heterogeneous. Traditional capital ratios decrease bank risk-taking. However, the risk-based capital ratio shows an unexpected affirmative effect. Implementing macroprudential policy instruments of capital buffer effectively manages bank risk, and so does the regulatory capital pressure variable. The results are intimate for guiding commercial banks' risk management and capital effectiveness.
Keywords: Macroprudential Policy; Financial Stability; Bank Risk-Taking; Prudential Capital Buffer; Regulatory Capital Pressure
JEL Classification: E58; G21; G28

Item Type:	Artikel Dosen
Subjects:	H Social Sciences > HB Economic Theory
Divisi / Prodi:	Faculty of Economics (Fakultas Ekonomi) > S1-Economic Development (S1 Ekonomi Pembangunan)
Depositing User:	Dr. Suripto Suripto
Date Deposited:	08 Jul 2023 08:36
Last Modified:	08 Jul 2023 08:36
URI:	http://eprints.uad.ac.id/id/eprint/43590

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