Thesis advisor: Fabio Schiantarelli / In the aftermath of the Great Recession of 2007-2009, Europe has been grappling with both a debt and a banking crisis, which caused a prolonged recession and on-going stagnation in some countries of the Eurozone. The distinctive feature of the European crisis, compared to the global recession that originated in the United States, is that it emerged as sovereign debt crisis and later evolved into a banking crisis, finally affecting the real economy. The banking and sovereign crises are heavily intertwined because of the interplay between banks and sovereigns in Europe. In fact, the so-called bank-sovereign nexus works both ways: not only banks hold large amounts of sovereign debt, especially from the domestic government, but also European governments retain a significant presence in the domestic banks' ownership. The adverse feedback loop is reinforced during a sovereign debt crisis, as banks' losses from sovereign debt further exacerbate the strain on the domestic sovereign in expectation of a future bail-out. The overall goal of this dissertation is to have a better understanding of the interplay between sovereign, banks and capital regulation. In my first and second chapter, I analyze the two-way feedback loop between banks and sovereigns in Europe. In particular, in the first chapter, I show that banks' sovereign debt exposures had a negative effect on credit supply during the crisis. In the second chapter I explore the role that politics may play in determining banks' exposure to sovereign debt. Finally, the third chapter investigates the effect of changing bank capital requirements for the firms that borrow from the affected banks. / Thesis (PhD) — Boston College, 2015. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

The financial crisis of 2007 until today affected the banking industry to a large extent. Many banks failed or got bailed out by governments. To protect against banking failures and new financial crises the Basel Committee on Banking Supervision (BCBS) has reviewed, renewed and extended the banking regulations. The result is a framework for banking regulations called Basel III. This study examines the Basel III framework and its potential effect on protecting the banks. The study answers the question: if Basel III may protect against new banking failures. The study has used a qualitative approach. The theoretical framework has been built up by the use of the literature review. Literature has mainly been found by use of the university library’s online databases. For the empirical results interviews were made with banks and supervisors from Sweden and from Finland to see their view on the emerging framework. The views of supervisors and banks are that Basel III should have tougher requirements than it now has. The capital requirements are seen as too low and the risk-weights are criticized not to reflect the reality. Supervisors are still positive and believe that Basel III will give a better protection, but it will not fully protect against failures. Banks have a similar view, some are positive and believe that it will give a better protection while others do not think it will protect against failures any better.

The banking sector plays a pivotal role in the economy in which it operates. It is therefore imperative to institute international regulatory bodies and regulations which will ensure the protection of all stakeholders in the sector. The adoption and implementation of the Basel Accords and their revised versions has been encouraged at The World Bank level, but the opinions and studies regarding the impact of the tightened regulations on the banking sector generated varied reactions. The objective of this research was to establish whether the increased capital requirements regulations, as guided by The Basel Accords, had negatively impacted the bank domestic lending of the countries which implemented the regulations by 2012. This quantitative research involved comparison of the domestic lending rates as a percentage of GDP of the countries which implemented Basel II for the years before, and after the implementation. The study has revealed that, despite the concerns that the increased capital requirements regulations would increase the lending costs, the implementation of these regulations did not negatively affect domestic lending from the banking sector. This research document concludes by recommending a few process guidelines which the global banking regulators might consider during the implementation of Basel III. / Dissertation (MBA)--University of Pretoria, 2013. / ccgibs2014 / Gordon Institute of Business Science (GIBS) / MBA / Unrestricted

Since the financial crisis in -08 there has been a need in regulating banks and their behavior. After a while, the Basel committee took action and started to work on the third version of the Basel framework, forcing banks to maintain higher equity and to be prepared for fast drops in liquidity on the market. The banking industry quickly responded that this could create costs over the global economic market. The argument came from the idea that debt is generally cheaper to hold compared to equity. They also expected the lending growth to decrease since the economy declined, which in turn would lead to a lower net interest margin and loss of profit. There has been theory that supports their claim, but it is still lack of empirical evidence. Therefore, a need for statistical proof of what will happen to banks when regulation is increased. Based on the background, the study is aiming to answer the research question:   “What effects has the increased requirements (capital ratios, restructuring of capital) ofthe ongoing implementation ofBasel III had on US Banks’ cost of capital, lending growth and net interest margin?”   Through several regression models tested, a quantitative study was performed which found that the increased requirements of capital and capital restructuring does not affect US banks’ lending growth. Although, the capital restrains did affect banks’ cost of capital negatively as it decreased and their net interest margin as it also decreased. The cost of capital analysis showed that there must be two counteracting forces that affects the variable, where the largest one decides which way it goes. The first one is that it should increase due to more expensive financing, and the other that banks become less risky for investors to invest in. This leading to the banks’ profitability not being as threatened as one might believe.   Contributions that the study brought are showing regulators that it is a necessity to be careful when implementing new regulation, as banks might lose some of their profit from the action which could be damaging for them. It also made sure that one must not discount for the effect of reduced systematic risk, and the gain that comes from it. In the end, developing of new regulation comes down to one thing; to make our economic society safer.

By using Arellano and Bond GMM estimator, this paper analyzes how the regulation framework of Basel, affects the profitability level of the banking industry. The data consists of savings and commercial banks located in 16 different OECD countries over the time period from 1992 to 2009. The cross-country study, evaluates, whether increased capital requirements have a negative effect on bank profitability, meaning, if banks that keep a larger capital buffer earn a lower return or if banks that increase capital are better prepared for the financial crisis and therefore manage to get a better return. To evaluate the effect, the time period utilized is divided into a pre-crisis period (1992 to 2007), which is compared with an average over the total period (1992-2009). The measure of profitability is the return on equity and to control for business cycle fluctuations macro economic factors are included. Previous research results are scattered and indicate that decreased risk taking increases profitability, meanwhile increased regulation decreases profitability. The main findings in this paper are that Tier 1 capital and risk-weighted assets have a negative effect on profitability, whereas the capital buffer illustrates a positive effect.

The insights from the 2008 financial crisis were that the banking sector was in need of change of regulation. The period from 2008 and onwards has involved several changes, of which capital requirements, MREL requirements and the resolution tool are three main regulations which have been introduced. The question being asked is whether we are now in a new macroeconomic regime, or whether the previous market regime which still prevails. To answer the question, the regulation that was added after 2008 is examined, as well as how these have motivated strengthening financial stability. The empirical evidence underlying the analysis consists of documents published by relevant authorities acting or working with regulation and/or supervision of the financial sector. The study has been carried out via an idea analysis where empirical ideas are used to answer the question of which macroeconomic regime currently prevails. The former regime is referred to as the market regime and is characterized by a belief in efficient markets through deregulation, independent central banks and a belief in a free market as the key to financial development. The regime that emerges shows both similarities and differences with the market regime. The fundamental political ideology that prevailed under the previous regime persists even today, but at the same time there are indications of a breaking point in the regime. Today's regime is more restrictive and the view of responsibility has clearly changed. Market regime thus still prevails but in a new guise, which was named neo-market regime to describe the differences between the period before 2008 and the period after.

Die Baseler Eigenkapitalrichtlinien bilden den umfassenden statuierenden Rahmen für die Regulierung des Eigenkapitals der Banken im internationalen Kontext. Sowohl die Zielsetzung der Baseler Regulierungsakkorde im Allgemeinen als auch die Ausgestaltung der Baseler Richtlinien im Speziellen haben sich angesichts der Entwicklungen der vergangenen drei Jahrzehnte deutlich weiterentwickelt. Neben der Stärkung der Sicherheit und Solidität, der Steigerung der Absorptionsfähigkeit von …nanziellen und ökonomischen Schocks und der Verringerung des moralischen Verhaltens der Banken spielen - insbesondere vor dem Hintergrund der Auswirkungen der jüngsten Finanzkrise - auch Aspekte der Liquiditätssicherung der Banken und die Verringerung der Abhängigkeit vom Interbankenmarkt sowie die Reduzierung der Prozyklizität der Eigenkapitalregulierungen eine bedeutende Rolle in der Zielsetzung der jüngsten Richtlinie Basel III. In dieser Arbeit werden die Konstruktionsmerkmale und Kernelemente der verschiedenen Baseler Regulierungsakkorde in Bezug auf deren Zielsetzungen untersucht und die Fragestellung betrachtet, inwiefern deren wesentliche Konstruktionselemente geeignet sind, die kommunizierten Zielstellungen zu erfüllen.

This thesis studies the interaction between monetary and macroprudential policy using a DSGE model with real and financial frictions under government and financial shock scenarios. Countercyclical capital requirements are used as a macroprudential policy tool combined with a Taylor rule for monetary policy. In the case of the government shock, our findings indicate that policies' coordination reduces the volatility of the output vis-à-vis a "monetary policy only" regime. Analysis of financial shocks indicates that monetary policy alone can suffice to ensure financial stability. Lastly, welfare analysis suggests there is no optimal policy combination for all agents and highlights a redistributive effect of both shocks, showing that policy that is beneficial for one group of agents can decrease welfare for another. JEL Classification E44, E52, E61 Keywords monetary policy, macroprudential policy, capital requirements, financial stability Author's e-mail kateryna.kireichenko@gmail.com Supervisor's e-mail martina.jasova@fsv.cuni.cz

Historically, banks have always had a central role in the economy. Their decisions do not only affect their shareholders and customers but the whole economic system. As a consequence, the financial crisis of 2007-2008 has shown that bank management is a huge matter and that the failure of one bank can affect tremendously the whole banking system and the economy. For these reasons, banks need to be regulated by external organisations that constrain them to adjust their regulatory capital via their risk weighted assets. This paper examines the significant factors of the spread between the scenarios on Common Equity Tier 1 (CET1) of the 2016 stress test for EU banks. CET1 is a component of capital adequacy ratio and measures the connections between capital euntens’ris-weighted assets. On a methodological standpoint, this research is based on a positivist approach this meaning that a quantitative analysis has been performed. The sample used in this research is composed of 51 banks from 15 countries across EU and European Economic Area. All of these banks have been analysed by the European Banking Authority (EBA) which has conducted stress test in order to assess CET1 as regards to Basel III framework. The researchers have elaborated a conceptual model in order to select the most relevant variables that might affect the spread of CET1. The hypotheses are based on previous researches and take into account the following independent variables: Size, Stock Exchange Listed, Leverage ratio, Loans on Assets, Net Interest Margin, Risk-Weighted Assets to Total Assets and Profitability. Simple linear regression and multiple linear regressions have been performed to test the impact of all the independent variables on the spread of CET1. The statistical analyses have revealed that there are no significant relationships between the selected variables, except for size that has a significant negative impact on the spread as part of the multiple regression. Therefore, none of the hypotheses can be supported. These results provide new insights in the banking sector and to a larger extent for finance. They may be considered as a basis for future research on the spread of CET1.

Purpose: The purpose of this study is to describe and explain the relation of changes in capital requirements on the profitability of Swedish banks. Method: A mixed model approach is used. The quantitative approach is con-ducted through the collection and analysis of statistics from Swe-dish banks and financial institutions. The qualitative research ap-proach is used to obtain further insights into the Swedish banking system and how banks are managing capital requirements. This is conducted through interviews with respondents from a large bank, a niche bank, and the Riksbank. Analysis: The analysis is made on yearly data from 1999 to 2015. Return on equity and net interest margin are individually used as dependent variables. The independent variables are various capital ratios which are defined by the Basel framework. The results from the quantitative analysis are in line with the findings from the qualita-tive interviews. Conclusion: On one hand, capital requirement ratios seem to have a negative and statistically significant correlation with the Return on Equity for both large banks and niche banks. On the other hand, capital re-quirement ratios seem to have a positive and statistically significant correlation with the Net Interest Margin for niche banks.