PIDS EPM 2020-2021
Reset and Rebuild for a Better Philippines in the Post-pandemic World
DLSU-AKI Working Paper Series 2021-11-079
Examining and Evaluating the Multidimensional Energy Poverty Index (MEPI) in the Philippine Household Context
DLSU-AKI Working Paper Series 2021-11-078
A Game Theoretic Study on CSR and Government Intervention for Sustainable Production
DLSU-AKI Working Paper Series 2021-11-077
Obstacles to Economic Freedom Affecting Micro, Small, and Medium Enterprises (MSMEs) in Southeast Asian Countries

PIDS WB 2021-1104
Assessing the Philippines' Performance in Meeting the ASEAN Economic Community Vision 2025
PIDS WB 2021-1103
Examining The Health Impacts Of The COVID-19 Pandemic In The Philippines
ILS 30th Anniversary Video
PIDS WB 2021-1102
Evaluating the Pantawid Pamilyang Pilipino Program's Payment System
Publication Detail
BSP WPS 2019-01: Do Capital Regulations Influence Banks' Holding of "Excess" Capital?

This study examines the moral hazard and capital buffer theories as motivations of Philippine banks in managing their capital and risks following the adoption of Pillar 1 of the Basel III framework on minimum capital requirement. Using the empirical model of Heid et. al (2004) and Malovan√° (2017), the results of the study indicate that most banks adjust their regulatory capital ratio by optimizing their portfolio risk through changes in the level of capital. Banks do not have the tendency to immediately adjust their risk-weighted exposures but are more inclined to maintain a reasonable balance between changes in the size of their assets and capital. Moreover, banks that have lower capital ratios relative to their peers have higher tendency to adjust their capital ratio. The capital buffer theory likewise holds true, that is, banks with low capital buffers rebuild an appropriate level of buffer by decreasing their risk exposures while banks with high capital buffer are inclined to simply maintain their capital ratio when these banks increase their risk exposures. Another interesting finding of the study is that the adoption of minimum capital requirement did not result in moral hazard problem rather banks have become more risk-sensitive. In particular, banks try to rebuild an appropriate buffer by raising their level of capital while simultaneously lowering risk. The results are robust against diagnostic tests, different specifications of the model and alternative estimation method.

Bangko Sentral ng Pilipinas
Authors Keywords
Layaoen, Cherry Wyle, G.; Domantay; Vernalin Grace, F. ; minimum capital requirement, level of capital, risk-weighted exposures, risk-sensitive capital, regulatory capital;
Download PDF Number of Downloads
Published in 2019 and available for Downloaded 59 times since July 15, 2020
Please let us know your reason for downloading this publication. May we also ask you to provide additional information that will help us serve you better? Rest assured that your answers will not be shared with any outside parties. It will take you only two minutes to complete the survey. Thank you.

To use as reference:
If others, (Please specify):
Name: (optional)
Email: (required, but will not display)
If Prefer to self-describe, please specify:
Level of Education:
If employed either part-time or full-time, name of office:
If others, (Please specify):
Would you like to receive the SERP-P UPDATES e-newsletter? Yes No
Use the space below if you have any comment about this publication or SERP-P knowledge resources in general.