**6. Conclusion**

Efficient risk management is crucial for banks to ensure their profitability and maximize the shareholder's value. Over the past decades, the risk management practice has changed dramatically under the forces of the business environment and technology development. An important factor contributes to the way banks manage their risk is the regulation. This chapter shows how the regulators regulate bank risk with an emphasis on the risk-based capital regulation. It also reviews theoretical studies on how the risk-based capital regulation affects bank risk-taking. These studies explain the effect of capital regulation on bank risk considering different factors such as moral hazard, franchise value, capital buffer, and agency problem. The prediction of these studies is restricted by and depends on model assumptions. The chapter also provides empirical evidences from countries worldwide and shows that the effect of capital regulation on bank risk is not homogenous among countries.

**73**

**Author details**

Vietnam

New Zealand

Nguyen Thi Thieu Quang1

provided the original work is properly cited.

*Bank Risk Management: A Regulatory Perspective DOI: http://dx.doi.org/10.5772/intechopen.79822*

© 2019 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium,

and Christopher Gan<sup>2</sup>

2 Faculty of Agribusiness and Commerce, Lincoln University, Christchurch,

\*Address all correspondence to: christopher.gan@lincoln.ac.nz

1 Faculty of Banking, University of Economics, The University of Danang, Danang,

\*

*Bank Risk Management: A Regulatory Perspective DOI: http://dx.doi.org/10.5772/intechopen.79822*

*Perspectives on Risk, Assessment and Management Paradigms*

Bougatef and Mgadmi [62]

**Country Time** 

The US and non-US developed and developing countries

GCC countries

MENA countries

11 Dual banking countries

107 Countries

**Table 2.**

**period**

2003– 2009

1996– 2011

2004– 2012

2006– 2010

*usually the minimum capital requirement.*

1999 Barth et al. [64]

*Global evidences about the effect of capital regulation on bank risk.*

Efficient risk management is crucial for banks to ensure their profitability and maximize the shareholder's value. Over the past decades, the risk management practice has changed dramatically under the forces of the business environment and technology development. An important factor contributes to the way banks manage their risk is the regulation. This chapter shows how the regulators regulate bank risk with an emphasis on the risk-based capital regulation. It also reviews theoretical studies on how the risk-based capital regulation affects bank risk-taking. These studies explain the effect of capital regulation on bank risk considering different factors such as moral hazard, franchise value, capital buffer, and agency problem. The prediction of these studies is restricted by and depends on model assumptions. The chapter also provides empirical evidences from countries worldwide and shows that the effect of capital regulation on bank risk is not homogenous among

**Authors Risk proxy Capital** 

loan ratio

Ghosh [61] Z-score Dummy

Loan loss provision ratio

Nonperforming loan ratio

Alam [63] Loan loss reserves ratio

*Notes: + Gap approach measures capital regulation as the distance of bank capital ratio from certain threshold,* 

*+ Dummy approach assigns value 1 for banks whose capital ratios are less than certain threshold and 0 otherwise. + Probabilistic approach assigns value 1 for banks which are probably to be under regulatory pressure and 0 otherwise.*

Lin et al. [60] Nonperforming

**regulation proxy**

Probabilistic approach

approach

Dummy approach

Capital regulatory index

Capital regulatory index

**Effect of capital regulation on risk**

Negative effect

No effect

No effect

Negative effect

Negative effect

**72**

**6. Conclusion**

countries.
