How bank capital buffers vary across countriesthe influence of cost of deposits, market power and bank regulation

Resumen

This paper analyzes the bank and country determinants of capital buffers using the GMM estimator on a dynamic panel data of 1,337 banks from 70 countries. After controlling for adjustment cost and endogeneity of explanatory variables, our results show that capital buffers are positively related to the cost of deposits and bank market power. Moreover, these relations vary across countries depending on regulation, supervision and institutions. The influence of political economy variables is the result of two generally opposing effects: country variables that enhance market discipline increase the positive influence of cost of deposits and foster higher capital buffers; in contrast, country variables reducing market power diminish bank incentives to hold capital buffers. Our findings suggest that only better accounting disclosure rules and stringent restrictions on bank activities have a clear positive net effect on capital buffers.