Banks' Adjustments to Basel III Capital Requirements : Empirical research on a sample of 359 banks between 2015 and 2021

Abstract: Background: Fifteen years after the Global Financial Crisis, and four years after the enactment of the Basel III Accord, our thesis aims to answer how banks adapted to the new capital requirements. The core objective of the Basel Committee of Banking Supervision was to improve regulation and supervision and address the previous legislation deficiencies. Capital adequacy requirements are crucial parts of the code in preventing national economies from recessions and making the banking sector more resilient. Purpose: Investigate how banks adapted to the increased capital requirements and what strategies did they use to fulfil the new rules? What are the implications of these changes on the business volumes of the banks?                 Method: Decomposing changes in the capital adequacy ratio and dummy variable regression analysis to control for systematic differences in the development of sample banks' business volumes across categories. Conclusion: The results show that the 1.7 percentage increase in risk-weighted capital ratio originated mainly from higher capital accumulation rather than lower risk weights or smaller asset volumes. Starting capital ratio and the change in capital ratio tend to slow the increase of business volumes. However, the net income to total assets ratio likely accelerated the exposure. Significant divergencies in the coefficients of the explanatory variables indicate a systematic difference in the sample banks' strategies in adapting to the stricter regulatory requirements.