How Do Bank Capital and Capital Buffer Affect Risk: Empirical Evidence from Large US Commercial Banks

Abstract

Abstract This research aims to investigate the influence of bank capital, risk-based capital and bank capital buffers on the behaviour of bank risk-taking by applying GMM on the data of US commercial banks ranges from 2002 to 2018. The findings show that bank capital has a positive influence on total risk. However, risk-based capital and capital buffer have a negative impact on total risk. In addition, the results showed that the relationship between bank asset risk and bank capital, risk-based capital and a capital buffer is negative in pre, amid and post-crisis periods. The findings also reveal that the result of bank capital, risk-based capital and a capital buffer is not similar in case of well, adequately, under, significantly under, and critically undercapitalized banks. Our conclusions have numerous implications for policymakers and regulators in the banking sector.