Determinants of the Capital Level of Banks in Hong Kong

Banks incorporated in Hong Kong generally maintain a capital adequacy ratio (CAR) well above the regulatory requirement.1 For example, the average CAR of licensed banks was 28.3 per cent in the second quarter of 2004, against an average required minimum of just 10.3 per cent.2 This phenomenon is also common in other economies.3 It raises the question of what factors determine the actual amount of capital held by banks and, specifically, whether changes in regulatory requirements can affect the level of bank capital.4