Work detail

The Impact of Basel III on European Banks

Author: Mgr. Barbora Šútorová
Year: 2012 - summer
Leaders: doc. PhDr. Petr Teplý Ph.D.
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 96
Awards and prizes: M.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance.
Link:
Abstract: The aim of this thesis is to take a closer look on how the stricter capital requirements defined in Basel III
framework will influence European banks from a complex point of view - lending rates and volumes of
provided loans, profitability, risk taking and market value of banks. Our analysis employing
simultaneous equations and panel data models on exp post data on almost 600 banks operating in the EU
in period 2005-2011 reports following results: (1) Those banks that will be forced to effectively increase
their common equity ratio (CE/RWA) will reflect a one percentage point increase in this ratio into
higher lending rates by 18.8 basis points. (2) This should, in turn, lead to a modest impact on the volume
of provided loans, i.e. as a result of an increase of CE/RWA to 9.5 % (the case of the strictest scenario),
the loan volumes are expected to be lowered by 2% from the current volume. (3) Our study further
reports that higher capital requirements will cause a decrease in banks’ profitability accompanied by a
drop in risk taking. Banks increasing their CE/RWA by one percentage point are expected to experience
a decrease in their profitability (measured by ROAA) by 0.122 percentage points. (4) The above
mentioned effects were identified as rather negative signals for equity owners, which should be reflected
into a drop of market value of given banks.
Downloadable: Master Theses of Sutorova
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