SUFFICIENCY OF BANKING CAPITAL: THE EXPERIENCE OF PORTUGAL

Abstract

This article delves into the escalating frequency of financial crises and their repercussions on national economies, emphasizing the imperative need for both the global community and individual nations to establish mechanisms that can effectively counter financial shocks. The primary line of defence within banking institutions is their own capital. Consequently, the adequacy of a country's own capital plays a pivotal role in determining the robustness of its banking system. The article presents an in-depth analysis of the dynamics of fundamental capital types, including own and borrowed capital, and other economic indicators, with a specific focus on the proportion of own capital within these factors in Portugal, an integral part of the European community. The study employs correlation-regression analysis to explore the interdependencies among capital, liabilities, assets, income, and Gross Domestic Product (GDP). Regression models are developed to investigate the influence on a bank's own capital. The analysis substantiates the hypothesis regarding the interconnections among these key indicators. Based on the findings, recommendations are made for the implementation of a mechanism to ascertain capital sufficiency. The article places significant emphasis on identifying and utilizing instruments that facilitate the achievement of this objective, ultimately contributing to bolstering financial resilience in Portugal and beyond.

Keywords

• financial crises
• capital adequacy
• banking institutions
• equity
• liabilities
• economic indicators