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Regulatory Capital and Internal Capital Targets: An Examination of the Australian Banking Industry☆

J. Reid Cummings & Kassim Jahn Durrani

Journal of Financial Services Research2025https://doi.org/10.1007/s10693-025-00445-1article
AJG 3ABDC A
Weight
0.50

Abstract

In this study, we examine the capital management of Australian banks before the introduction of the capital conservation and countercyclical capital buffers of Basel III. We find evidence of a negative relationship between the internally targeted capital buffers of banks and the current state of the economic cycle. This finding supports the view that the capital conservation and countercyclical capital buffers under Basel III are necessary reforms to address the tendency of banks to manage their capital buffers in a pro-cyclical fashion. However, we also find evidence of forward-looking capital management: Banks set higher target capital buffers when the economic outlook improves and the loan demand increases. We find unambiguous evidence that banks adjust their actual capital buffers to align them with their pre-defined target capital buffers.

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https://doi.org/https://doi.org/10.1007/s10693-025-00445-1

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@article{j.2025,
  title        = {{Regulatory Capital and Internal Capital Targets: An Examination of the Australian Banking Industry☆}},
  author       = {J. Reid Cummings & Kassim Jahn Durrani},
  journal      = {Journal of Financial Services Research},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1007/s10693-025-00445-1},
}

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Regulatory Capital and Internal Capital Targets: An Examination of the Australian Banking Industry☆

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.