How do credit unions adjust their capital ratios? Evidence from Brazil
Keywords:
Capital structure, Capital ratios, Basel III, Credit unionsAbstract
Purpose: The purpose of this paper is to analyze the speed at which credit unions adjust their capital ratios.
Design/methodology/approach: The systemic Generalized Method of Moments (GMM-Sys) was applied to 704 Brazilian individual credit unions from 2014 to 2022, with a total of 5,864 observations.
Findings: The results indicate that the median Basel Ratio was higher than the Leverage Ratio, without breaching the regulatory minimum. Credit unions show differences in the speed of adjustment, with faster adjustment for the Basel Ratio compared to the Leverage Ratio. Size influences the speed of adjustment, with larger credit unions being more flexible in adjusting their Leverage Ratio more quickly, while smaller credit unions adjust more slowly to the Basel Ratio. During economic crises, the speed of adjustment of the Basel Ratio was higher, probably due to more thorough analysis by supervisors and stakeholder expectations.
Originality/value: The originality of this study lies in the analysis of the speed of adjustment of capital ratios in credit unions, focusing on the differences between the Basel and Leverage Ratios. This study fills a significant gap in the literature, offering insights into how these institutions adjust their capital ratios in the context of Basel III. The research also explores the impact of credit union size and economic crises on these adjustments, contributing to a deeper understanding of the financial behavior of these institutions and its implications for regulators and supervisors.
Downloads
References
Abbas, F. and Ali, S. (2024), “Leverage and regulatory capital ratios in Japan”, Management Decision, Vol. 62 No. 3, pp. 1084-1104, doi: 10.1108/MD-02-2023-0188.
Abbas, F. and Masood, O. (2020), “How banks adjust capital ratios: the most recent empirical facts”, Quantitative Finance and Economics, Vol. 4 No. 3, pp. 412-429, doi: 10.3934/QFE.2020019.
Abbas, F., Ali, S., Yousaf, I. and Rizwan, S. (2020), “How commercial banks adjust capital ratios: empirical evidence from the USA?”, Cogent Business and Management, Vol. 7, pp. 1-18, 1859848, doi: 10.1080/23311975.2020.1859848.
Al-Zyoud, H. and Ordonez-Ponce, E. (2022), “COVID-19 and credit unions: CSR approaches to navigating the pandemic”, Business and Society Review, Vol. 127 No. S1, pp. 171-192, doi: 10.1111/basr.12267.
Arellano, M. and Bond, S. (1991), “Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations”, The Review of Economic Studies, Vol. 58 No. 2, pp. 277-297, doi: 10.2307/2297968.
Bakkar, Y., De Jonghe, O. and Tarazi, A. (2019), “Does banks’ systemic importance affect their capital structure and balance sheet adjustment processes?”, Journal of Banking and Finance, Vol. 151, pp. 1-21, 105518, doi: 10.1016/j.jbankfin.2019.03.002.
Banco Central do Brasil (BCB) (2022), “Overview of the national credit union system”, Base date: December/2022, available at: https://www.bcb.gov.br/estabilidadefinanceira/coopcredpanorama
Banco Central do Brasil (BCB) (2024), “IF data”, Base date: December/2022, available at: https://www3.bcb.gov.br/ifdata/
Berger, A.N., DeYoung, R., Flannery, M.J., Lee, D. and Öztekin, Ö. (2008), “How do large banking organizations manage their capital ratios?”, Journal of Financial Services Research, Vol. 34 No. 2, pp. 123-149, doi: 10.1007/s10693-008-0044-5.
Booth, L., Aivazian, V., Demirguc-Kunt, A. and Maksimovic, V. (2001), “Capital structure in developing countries”, The Journal of Finance, Vol. 56 No. 1, pp. 87-130, doi: 10.1111/0022-1082.00320.
Cao, Y. and Chou, J.Y. (2022), “Bank resilience over the COVID-19 crisis: the role of regulatory capital”, Finance Research Letters, Vol. 48, 102891, doi: 10.1016/j.frl.2022.102891.
Carrera-Silva, K., Ulcuango, O.M.R., Abdo-Peralta, P., Salazar, A.G.C., Erazo, C.A.S. and Ávalos, D.H. (2024), “Beyond the financial horizon: a critical review of social responsibility in Latin American credit unions”, Sustainability, Vol. 16 No. 18, p. 7908, doi: 10.3390/su16187908.
Cohen, B.H. and Scatigna, M. (2016), “Banks and capital requirements: channels of adjustment”, Journal of Banking and Finance, Vol. 69 No. S1, pp. S56-S69, doi: 10.1016/j.jbankfin.2015.09.022.
De Jonghe, O. and Öztekin, Ö. (2015), “Bank capital management: international evidence”, Journal of Financial Intermediation, Vol. 24 No. 2, pp. 154-177, doi: 10.1016/j.jfi.2014.11.005.
Filip, A. and Raffournier, B. (2014), “Financial crisis and earnings management: the European evidence”, The International Journal of Accounting, Vol. 49 No. 4, pp. 455-478, doi: 10.1016/j.intacc.2014.10.004.
Flannery, M.J. and Rangan, K.P. (2006), “Partial adjustment toward target capital structures”, Journal of Financial Economics, Vol. 79 No. 3, pp. 469-506, doi: 10.1016/j.jfineco.2005.03.004.
Fortuna, E. (2015), Mercado financeiro: produtos e serviços, 20 ed., Qualitymark Editora, RJ.
Frank, M. and Goyal, V. (2009), “Capital structure decisions: which factors are reliably important?”, Financial Management, Vol. 38 No. 1, pp. 1-37, doi: 10.1111/j.1755-053X.2009.01026.x.
Gollo, V. and Silva, T.P. (2015), “Global efficiency in the economic and financial performance of Brazilian credit unions”, Journal of Accounting and Organizations, Vol. 25, pp. 43-55, doi: 10.11606/rco.v9i25.88099.
Gropp, R. and Heider, F. (2010), “The determinants of bank capital structure”, Review of Finance, Vol. 14 No. 4, pp. 587-622, doi: 10.1093/rof/rfp030.
Hansen, L.P. (1982), “Large sample properties of generalized method of moments estimators”, Econometrica, Vol. 50 No. 4, pp. 1029-1054, doi: 10.2307/1912775.
Henrique, M.R., Silva, S.B. and Saporito, A. (2021), “Capital structure, stock exchanges in Chile: 2007 to 2016”, Journal of Economics, Finance and Administrative Science, Vol. 26 No. 52, pp. 317-332, doi: 10.1108/JEFAS-10-2020-0328.
Hessou, H. and Lai, V.S. (2018), “Basel III capital buffers and Canadian credit unions lending: impact of the credit cycle and the business cycle”, International Review of Financial Analysis, Vol. 57 No. 1, pp. 23-39, doi: 10.1016/j.irfa.2018.01.009.
Hoque, H. and Pour, E.K. (2018), “Bank-level and country-level determinants of bank capital structure and funding sources”, International Journal of Finance and Economics, Vol. 23 No. 4, pp. 504-532, doi: 10.1002/ijfe.1635.
Iatridis, G. and Dimitras, A.I. (2013), “Financial crisis and accounting quality: evidence from five European countries”, Advances in Accounting, Vol. 29 No. 1, pp. 154-160, doi: 10.1016/j.adiac.2013.03.001.
Jensen, M.C. (1986), “Agency costs of free cash flow, corporate finance, and takeovers”, The American Economic Review, Vol. 76 No. 2, pp. 323-329, doi: 10.2139/ssrn.99580.
Jovanovic, T., Arnold, C. and Voigt, K.I. (2017), “Cooperative banks in need of transition: the influence of Basel III on the business model of German cooperative credit institutions”, Journal of Co-operative Organization and Management, Vol. 5 No. 1, pp. 39-47, doi: 10.1016/j.jcom.2017.03.003.
Lemmon, M.T., Roberts, M. and Zender, J.F. (2008), “Back to the beginning: persistence and the cross-section of corporate capital structure”, The Journal of Finance, Vol. 63 No. 4, pp. 1575-1608, doi: 10.1111/j.1540-6261.2008.01369.x.
Memmel, C. and Raupach, P. (2010), “How do banks adjust their capital ratios?”, Journal of Financial Intermediation, Vol. 19 No. 4, pp. 509-528, doi: 10.1016/j.jfi.2009.10.002.
Oliveira, V. and Raposo, C. (2021), “The determinants of European banks’ capital structure: is there a difference between public and private banks?”, International Journal of Central Banking, Vol. 17 No. 3, pp. 155-202.
Pinheiro, F.A.P., Savoia, J.R.F. and Securato, J.R. (2015), “Basel III: impact on banks in Brazil”, Accounting and Finance Review, Vol. 26 No. 69, pp. 345-361, doi: 10.1590/1808-057x201500720.
Rajan, R. and Zingales, L. (1995), “What do we know about capital structure? Some evidence from international data”, The Journal of Finance, Vol. 50 No. 5, pp. 1421-1460, doi: 10.1111/j.1540-6261.1995.tb05184.x.
Silva, A., Santos, J.F., Ramos, R.S. and Freitas, M.A.L. (2019), “Determinants of the capital structure of Brazilian banks”, Revista Gestão, Finanças e Contabilidade, Vol. 9 No. 2, pp. 59-76, doi: 10.18028/rgfc.v9i2.7152.
Thakur, O.A., Tunde, M.B., Noordin, B.A.A., Alam, M.K. and Prabowo, M.A. (2024), “The relationship between goodwill and capital structure and the moderating effect of financial market development”, Journal of Economics, Finance and Administrative Science, Vol. 29 No. 57, pp. 121-145, doi: 10.1108/JEFAS-04-2022-0107.
Wojewodzki, M., Boateng, A. and Brahma, S. (2020), “Credit rating, banks’ capital structure and speed of adjustment: a cross-country analysis”, Journal of International Financial Markets, Institutions and Money, Vol. 69, p. 1, 101260, doi: 10.1016/j.intfin.2020.101260.
World Bank National Accounts Data (2024), “World Bank open data”, available at: https://data.worldbank.org/
Zancan, F., Canassa, B.J. and Valle, M.R. (2023), “Capital structure in Brazilian credit unions: which factors are really determinants?”, Revista Brasileira de Gestão de Negócios, Vol. 25 No. 2, pp. 199-214, doi: 10.7819/rbgn.v25i2.4223.
Downloads
Published
How to Cite
Issue
Section
License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
