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2019
- ISIDORE Id: 10670/1.9aafd5...
- hal: hal-04141855
info:eu-repo/semantics/OpenAccess
Mots-clés
Basel III, Capital ratio, Liquidity ratio, Banks' profitability, Random Forest regressions.Sujets proches
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Pierre Durand, « Determinants of banks' profitability: Do Basel III liquidity and capital ratios matter? », HAL SHS (Sciences de l’Homme et de la Société), ID : 10670/1.9aafd5...
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Résumé
In this paper, we investigate the role played by the TCR and LCR among determinants of banks' profitability. To this end, using Random Forest regressions and a large dataset of banks' balance sheet variables, we assess the impact and predicting power of Basel III capital and liquidity ratios. Our results confirm the trade-off theory of the capital structure: banks have an optimal capital ratio below which the relation between capital and profitability is positive. On average, this optimum falls between 15% and 20%. Furthermore, we show that LCR has a positive, but weak, effect on profitability. Overall, our findings illustrate the fact that regulatory ratios do not constitute binding conditions for banks' performance.
