Impact of Basel II on Bank Portfolios in Australia

Abstract

This paper analyses the sensitivity of various risk-weighted assets and liabilities to regulatory capital ratios of domestic and foreign banks in Australia. In particular, this paper investigates whether the growth of various risk-weighted assets changes during the post-Basel II period and whether those changes are caused by the more rigorous capital regulation introduced by the Basel II. The empirical analysis shows that Australian local banks is found to experience a substantial increase of the high-risk weighted assets (namely, non-residential loans) and subordinated debt with respect to their tier 1 capital ratio. The same changes, however, are found to have insignificant influence on the growth of low-risk weighted assets and total asset.

Keywords: Regulatory capital; Basel II; Bank; Australia

DOI: 10.7176/EJBM/11-5-04