The effect of regulations and practices related to capital adequacy in banking sector on crisis management: The case of Turkey

The aim of this study is to analyze the effect of regulations and practices regarding capital adequacy in the banking sector on crisis management. In the literature section of this study, the regulations and practices regarding capital adequacy in the banking sector in Turkey during crisis periods, the negative aspects of these practices, how to prevent such negativity, the assessment of potential crises in the market and the negative consequences they may cause, measures that can be taken, theoretical discussions and studies on the relationship between Basel I, II, III, and IV capital adequacy agreements, capital adequacy regulations and ratios, their relation to both banks' financial indicators and macroeconomic indicators, and their impact on the economy have been examined. In the practical part of the study, efforts have been made to demonstrate the relationship between capital adequacy and financial crises through econometric modeling, based on theoretical discussions and empirical studies. Three different models were used in the study; in the first model, the effect of data on the banking sector, in the second model, the effect of macroeconomic indicators were investigated on the Capital Adequacy Ratio. In the third model, all variables are included in the model and the possible effect of the crisis on the capital adequacy coefficient is observed. The models have generated results indicating a significant and effective interaction between a significant portion of the independent variables and the dependent variable, CAR, and it has been concluded that the models have sufficient explanatory power. In other words, the econometric analysis conducted in the study demonstrates that the regulations regarding capital adequacy and the Capital Adequacy Ratio are effective on crises. The results obtained regarding both the explanatory power of the established models and the statistical impact of the independent variables on the dependent variable confirm this situation. As can be seen from the studies available in the literature, there is a strong relationship, recognized both in academic and scientific circles as well as in the financial world, between risk models, which form the basis of risk management and capital adequacy regulations, and financial crises and it is believed that these regulations should have a preventive role of crises. After the 2008 global crisis, the issues discussed and submitted to the US House of Representatives regarding risk measurement models are one of the most important empirical evidence of this relationship, independent of any econometric model and analysis. Keywords: Capital Adequacy, Financial Indicators, Crises, Basel Regulations