Do the Revised Basel III Tiers Affect Banks? An Australasian Study

Dilja Gudmundsdottir

Student thesis: Master thesis

Abstract

Capital regulations on banks has been a prominent topic ever since the global financial crisis that started in 2007 and ended in 2009. Multiple banks worldwide either filed for bankruptcy or had to be bailed out by their governments.There are many that believe that unregulated banks take on too much risk hoping to earn superior returns while there are other opinions that banks operate most efficiently in completely free markets and that regulation will ultimately harm everyone as credit becomes harder to get and loans become more expensive. Therefore the topic of finding the right balance between regulation and freedom within the banking sector is worth exploring.
This thesis studied the effects of the Basel III capital tiers, that is common equity tier 1, Tier 1 equity and tier 2 equity on four bank related variables.The four variables were return on equity, return on assets, net interest margin and lending growth. It included four of the largest banks in both Australia and New Zealand. Regression analysis was performed to try and detect whether there exist any notable relationships between the variables.
The results were that Australian banks appear to be more sensitive to changes in capital levels showing a significant decrease in ROE and ROE when capital holdings increase. It also showed a relationship that NIM is positively correlated with increase in capital levels indicating that they increase their lending spreads to compensate.
New Zealand banks key variables showed very little significant movement with change in capital levels and both ROE and ROA were positively correlated.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2018
Number of pages81