Prague Economic Papers 2016, 25(2):127-142 | DOI: 10.18267/j.pep.541

Bank Capital, Risk and Performance in European Banking: A Case Study on Seven Banking Sectors

Irina Raluca Busuioc Witowschi1, Florin Alexandru Luca2
1 Technical University ""Gheorge Asachi"" of Iaºi (iwitowschi@yahoo.com).
2 Technical University ""Gheorge Asachi"" of Iaºi (florin.alexandru.luca@gmail.com).

The aim of this paper is to evaluate the way in which capital influences profitability of banks and exposure to risk in seven European countries: Austria, Bulgaria, Greece, Italy, Romania, the Netherlands and Hungary. Based on previous studies, we developed a model of simultaneous equations to analyse the relation between capital, risk and performance. The model includes 68 banks and covers the period between 2006 and 2011. In addition, estimations have been made for the three capital ratios (own capital ratio, tier 1 ratio and capital adequacy ratio) for each country included in this study. The obtained results have revealed the existence of a negative relationship between capital and taken risks and a positive relationship between capital and profitability, as well as between risk and profitability.

Keywords: risk, profitability, European banks, capital ratios
JEL classification: C33, G21, G28

Published: January 1, 2016  Show citation

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Witowschi, I.R.B., & Luca, F.A. (2016). Bank Capital, Risk and Performance in European Banking: A Case Study on Seven Banking Sectors. Prague Economic Papers, 25(2), 127-142. doi: 10.18267/j.pep.541
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