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This paper aims to offer a comprehensive comparison of the characteristics between banks that securitize and banks that do not and to provide evidence of the capital arbitrage theory of securitization.

First, the fundamental financial similarities and differences between banks that securitize assets and banks that do not participate in the securitization market are tested. Second, variables that help predict whether a bank securitizes assets are analyzed. Third, the determinants of securitization extent in banks that securitize assets are investigated – for general securitization extent and for specific type of asset securitized. Using a sample of 112 banks that securitize different assets, a matched sample of banks that do not securitize based on entity type and size is created. A quarterly panel data set of these banks dating back to 2001 is used.

The results indicate that bank size is a significant determinant of whether a bank securitizes. Further, overall securitization extent is negatively related to the bank's capital ratio (in support of capital arbitrage theory), but this result is primarily driven by credit card securitization.

Utilizing a unique data set of quarterly data from bank Call Reports; the panel data set is large relative to past studies. A matched sample approach was used to test fundamental financial similarities and differences between securitizing and non‐securitizing banks. In addition to aggregated securitization, an examination was made of how different classes of assets affect the banks' risk‐based capital ratios and test the capital arbitrage theory of securitization.

To raise the quality of regulatory capital, Basel III capital rules recognize unrealized gains and losses on all available-for-sale (AFS) securities in Common Equity Tier 1 Capital (CET1). However, by examining the correlations between U.S. GDP growth rate, interest rates and regulatory capital ratios computed using Basel III regulatory capital definition for six U.S. global systemically important banks (G-SIBs) since 2007, this chapter finds that Basel III regulatory capital will enhance the pro-cyclicality of Basel III leverage ratio and Tier 1 capital ratio and their sensitivity to long-term interest rates. Therefore, Basel III capital standards may have significant implications for bank supervision and bank capital risk management in the near future. As banks will hold more high-quality liquid assets (HQLAs) as required by Basel III Liquidity Coverage Ratio (LCR), the weight of unrealized gains and losses arising from fair value accounting will increase in Basel III Tier 1 capital base, the consequent increase of pro-cyclicality in a bank’s regulatory capital ratios may distort the true picture of bank capital adequacy. If an expected loss approach (EL) is used as the provisioning model, such capital risk may be increased further. Moreover, as U.S. monetary policy has started tapering quantitative easing, long-term interest rates will increase inevitably. This may increase the negative impact of unrealized gains and losses on AFS securities on bank capital. As a result, it may be difficult for banks to maintain appropriate capital ratios to meet regulatory requirements and support business activities.

This study aims to determine how Basel III capital requirements affect the stability of Islamic banks globally during the global financial crisis and the COVID-19 pandemic.

The secondary data for all Islamic banks worldwide from 2004 to 2021 is obtained from the FitchConnect database. The main technique was a two-step generalized method of moment (GMM) system, and the data were tested using pooled ordinary least squares, fixed effects and difference GMM models for robustness checks.

Regression results support the moral hazard hypothesis based on evidence that both the total capital ratio and the Tier 1 capital ratio have a statistically significant positive impact on the stability of Islamic banks globally. Furthermore, neither the global financial crisis of 2008–2009 nor COVID-19 (2020–2021) significantly impacted the stability of Islamic banks worldwide. The results are robust across alternative measures of stability, capital buffers, dummy variables and estimation techniques. According to the descriptive statistics, the number of Islamic banks that disclose their regulatory capital ratios to the public has increased over the study period, and the mean of total capital and Tier 1 ratios are considerably greater than what is required by Basel II and Basel III.

Bankers, regulators and policymakers should benefit from the evidence on capital and risk management in Islamic banking according to Basel Committee on Banking Supervision (BCBS) and Islamic financial services board (IFSB) international standards in various jurisdictions.

This research builds on earlier studies that were both beneficial and instructive by exploring the relationship between BCBS and IFSB capital guidelines and the trustworthiness of Islamic banks in greater depth. This study uses numerous capital ratios, buffers and stability measures to provide an international context for research on Islamic banking. In addition, the database is up-to-date to include information about the COVID-19 pandemic aftereffects in the year 2021. This study also introduces the Basel membership of Islamic banks to provide context for countries still at the Basel II stage or are yet to begin implementing the Basel III international standard.

This paper aims to examine the effect of capital structure on Islamic banks’ (IBs) performance to provide guidance to finance managers for raising capital funds. As newcomers to the markets, IBs are facing a trade-off. They can either use high capital ratios which increase the soundness and safety of the bank and lower the required return by investors, or depend on deposits and Islamic bonds which are considered cheaper sources of funds due to their tax rebate. An IB’s management must carefully decide the appropriate mix of debt and equity, i.e. capital structure, to maximize the value of the bank.

Using a sample of 85 IBs covering banking systems in 19 countries, the study uses a two-stage least squares method to examine the performance determinants of IBs to control the reverse causality from performance to capital structure.

After control of the macroeconomic environment, financial market structure and taxation, results indicate that IBs’ performance (profitability) responds positively to an increase in equity (capital ratio). The result is consistent with the signaling theory which predicts that banks expected to have better performance credibly transmit this information through higher capital. Optimal capital structure results of the IBs found a non-monotonic U-shaped relationship between the capital-asset ratio and profitability, supporting the efficiency risk and franchise value hypotheses.

Due to limitations for market data, the study uses book accounting ratios. Future research where market data are available could use performance measures, such as Tobin’s Q in performance determinants models.

The non-monotonic relationship found between IBs’ return on equity and capital ratios suggests that equity issuances for IBs’ with low capital ratios (lower than the turning point of 37.41 per cent) are expensive and have a negative effect on their profitability. On the other hand, managers of well-capitalized IBs (banks with capital ratios beyond 37.41 per cent) are advised to rely on equity when faced by a decision to raise capital, as the capital ratio starts to affect their profitability positively.

Islamic banking literature has been silent on IBs’ capital structure and its relevance; this study will try to fill in the existent gap.

The purpose of this study is to investigate the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of Japanese banks.

To test the hypotheses, the authors have implemented a panel of 507 commercial and cooperative banks of Japan over the period extending from 2001 to 2020, using a two-step system Generalized Method of Moments (GMM) framework.

The overall sample banks' results show that the impact of leverage, regulatory capital and tier-I capital ratios on ex ante and ex post risk is positive. The findings reveal that the effects of regulatory and tier-I capital ratios on ex post risk are negative (positive) for commercial (cooperative) banks, high-liquid, low-liquid and high-growth banks in Japan. In addition, the regulatory capital ratio is more beneficial for risk due to its power to absorb losses. The lagged coefficient indicates that banks require more time to adjust their ex post and ex ante risk during crisis period than during normal economic conditions.

The heterogeneity in results has practical implications for regulators, policymakers and bank managers in formulating the capital requirement guidelines with respect to ex ante and ex post risk across different categories and characteristics of banks.

To the best of the authors' knowledge, this is the first study investigating the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex-post risk of Japanese commercial and cooperative banks over the period from 2001 to 2020. The insights into the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of well-capitalized, under-capitalized, high and low-liquid banks are new in the context of Japan.

This study aims to understand how quickly Japanese banks readjust their capital ratios (leverage, regulatory capital, tier-I capital and common equity) following an economic shock.

This study uses a two-step system GMM framework to test the study's hypotheses using the annual data of Japanese commercial and cooperative banks ranging from 2005 to 2020.

The findings show that banks adjust their leverage ratio faster than regulatory capital, tier-I capital and common equity ratios. In addition to that, the results reveal that the speed of capital adjustment is higher for commercial banks than for cooperative banks, suggesting higher economic costs and implications for commercial banks. Furthermore, it is worth noting that well-capitalised (under-capitalised) banks tend to prioritise the adjustments to common equity (leverage) before considering the adjustments to leverage (common equity). According to the results, high-liquid (low-liquid) banks alter their regulatory capital and tier-I capital ratios (leverage) more quickly (more slowly) than low-liquid (high-liquid) banks.

The findings suggest that when formulating and implementing new banking regulations, particularly in assessing and adjusting specific capital requirements under Pillar II of Basel III, management (including bankers, regulators and policymakers) should consider the heterogeneity observed in the rate of capital adjustment across various bank characteristics. Additionally, bank managers should also consider the speed of adjustment when determining optimal half-life and target capital structures.

To the author's knowledge, this study represents a pioneering investigation into the rate of adjustment of capital ratios (leverage, regulatory, tier-I and common equity) within Japan's banking sector. The study employs a comprehensive dataset encompassing both commercial and cooperative banks to facilitate this analysis. A notable contribution to the existing body of literature, this study offers a detailed analysis and emphasises the varying degrees of adjustment in capital ratios. The study also highlights the heterogeneous nature of the adjustment rate in these ratios by categorising the data into well-capitalised, under-capitalised, highly liquid and low-liquid banks.

This study aims to analyze the factors related to the failure of 535 Federal Deposit Insurance Corporation (FDIC)-Insured United States banks in conjunction with the 2008 financial crisis.

The research consists of an analysis of the following three five-year partitions: pre-crisis (2002–2006), crisis (2007–2011) and post-crisis (2012–2016). The main hypothesis is that the factors explaining bank failures vary by period. Using logistic regression analysis, the authors identify the desirable models by period based on three model selection strategies.

Liquidity and non-risk-based capital ratios are important explanatory factors in all three periods. As the authors can see from the results, when comparing the full period (2002–2016) and the three five-year period partitions (2002–2006, 2007–2011 and 2012–2016), the ratios change from period to period, but they measure the same financial areas of concern in different contexts as follows: liquidity, leverage/risk exposure and capital adequacy. Risk-based capital ratios are not effective predictors of bank failures.

Recent academic studies have analyzed bank failures during periods that cover the years before, during and after the crisis, but most of these studies discuss bank failures in the forecasting context only. This study includes an analysis of failure determinants during pre-crisis, crisis and post-crisis subperiods based on the FDIC monitoring system of bank failures and identifies what ratios are more relevant during each period and how they change from period to period.

This paper investigates the role of market structure and institutional quality in determining bank capital ratios in developing economies.

The generalised methods of moment technique is used to control for auto-correlation and endogeneity in a sample of 79 publicly listed commercial banks. The study period is between 2000 and 2016.

Results show that market structure (proxied with bank competition) as well as institutional quality (regulatory quality) lowers bank capital in the sampled banks. This suggests that banks operating in less competitive markets with good regulatory quality do not need to engage in excessive risk-taking activities that would necessitate holding increased level of capital. Furthermore, the interaction of competition and regulatory quality reinforces the main findings, suggesting the importance of the two variables in determining bank capital ratio.

Research has limitation in that the study investigated publicly listed commercial banks, the findings may not be applicable to non-listed banks.

Taking into cognisance the developing nature of the banking system in Africa, the findings from this study imply that the maintenance of an improved regulatory quality in an environment where healthy competition exists would encourage banks to hold capital ratios appropriate for their level of banking activities, that is, the banks would not engage in excessive risk-taking activities.

This is one of the first papers that examine the effect of market structure and institutional quality on bank capital ratios in developing countries that have bank-based financial systems.