Capital Requirement, Franchise Value, and Bank Risk Taking with Institutional Environment as Interaction Variable: Evidence from Asia

Abstract

In the past decade, the dynamics of capital requirements, franchise value, and risk-taking behaviors in banking have garnered significant attention in the financial sector. This study delves into these aspects with a particular focus on the Asian banking industry, examining how the institutional environment interacts with and influences these factors. Through an extensive literature review, this paper explores the intricate relationship between capital requirements, the perceived value of banking franchises, and the consequent risk-taking decisions in varying institutional contexts across Asia. The findings reveal a complex interplay where institutional environments significantly modulate how banks respond to capital requirements and value their franchises, thereby affecting their risk appetite. This study contributes to the existing body of knowledge by providing a nuanced understanding of these relationships in the Asian context, highlighting the critical role of institutional factors in shaping banking strategies and risk management.