Publication

This paper discusses how German savings banks adjust capital and risk under capital regulation during the period 1994-2002. In comparison to former research, the authors impose fewer restrictions with regard to the impact of regulation on capital and risk adjustments. They find evidence that the coordination of capital and risk adjustments depends on the amount of capital the bank holds in excess of the regulatory minimum. While banks with low capital buffers try to rebuild an appropriate buffer by raising capital and lowering risk, banks with high capital buffers try to maintain it by increasing risk when capital increases.