The Effect of Capital Buffer on Bank Risk-Taking in Vietnam Using Quantile Regression

This study aims to elucidate the nonlinear and heterogeneous relationship between capital buffers and risk-taking in Vietnamese commercial banks. Using quantile regression to analyze data from 25 commercial banks in Vietnam from 2008 to 2022, we found a significant relationship between capital buffers and risk-taking in the banking system. Specifically, capital buffers influence risk-taking in a U-shaped pattern, with stronger effects observed in the upper tail of the risk-taking distribution. Moreover, the turning point of the capital buffer decreases across risk-taking quantiles. These findings indicate that increasing capital buffers, regardless of new capital requirements, does not consistently reduce risk-taking. Notably, high-risk banks exhibit increased risk-taking as capital buffers grow beyond the turning point.