Incentive

Capital (architecture)

Quantile regression

Economic capital

Communication

Statistics

Financial capital

Microeconomics

Quantile

China

Archaeology

Economics

Business

Capital adequacy ratio

Regression

Psychology

Mathematics

Geography

Political science

Capital requirement

Monetary economics

Econometrics

Geometry

Human capital

Capital formation

Point (geometry)

Economic growth

Risk-adjusted return on capital

Affect (linguistics)

Profit (economics)

History

China Economic Review

We present evidence of nonlinearity and heterogeneity relation between capital buffer and risk-taking for the Chinese banking system. We use quantile regression methods on a data set of 135 Chinese banks during 2004–2017. Our results suggest that bank capital buffer has a robust U-shaped association with bank risk-taking. This effect is more significant for banks that at the upper tail of risk-taking distribution. Moreover, we demonstrate for the first time that the turning point of capital buffer decreases throughout the risk-taking distribution. These findings offer important policy implications that continuously increasing bank capital requirement does not continuously lead to lower risk-taking, instead, requiring banks to build up too much capital buffer is more likely to result in greater risk-taking for high-risk banks.

How does capital buffer affect bank risk-taking? New evidence from China using quantile regression