Capital Buffer and Risk-Taking in Publicly Listed Banks in Indonesia: A Quantile Regression Approach

Isrita Anelly, Abel Tasman

Abstract


This study aims to analyze the non-linear and heterogeneous effects of the relationship between capital buffers and risk-taking in public banks in Indonesia. This study uses a quantitative approach with secondary data from financial reports of 45 public banks in Indonesia during the 2020-2024 period, employing purposive sampling to select a sample of 225 observations. The analysis uses OLS panel data regression and quantile regression to test the effect of capital buffers on risk-taking across different levels of the bank risk distribution. The results of the study indicate that (1) capital buffers have a nonlinear U-shaped relationship with bank risk-taking, which indicates that increasing capital buffers at a certain level can reduce risk-taking, but after passing a certain turning point, increasing capital buffers actually encourages increased risk-taking, (2) the nonlinear effect is stronger in banks at lower risk-taking levels, thus indicating heterogeneity in the influence of capital buffers along the risk distribution, and the turning point of capital buffers tends to decrease across the risk-taking distribution, which means that banks with high risk levels tend to reach the threshold for changing risk behavior at lower capital buffer levels. These findings indicate that increasing capital requirements is not always effective in consistently suppressing risk-taking. The implications of this research suggest that capital policies need to be designed more adaptively, taking into account the risk characteristics of each bank, as implementing excessively high capital buffer requirements could potentially encourage banks to increase risk-taking, particularly at high-risk banks

Keywords


Capital Buffer; Quantile Regression; Risk-taking

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References


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DOI: https://doi.org/10.17509/ijdb.v5i4.99653

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