Adaptation efforts of banking sector to the Basel-II new capital accordance and a banking profitability case

Relation between return and equity is serious significant issue for banks , expected causality relation between the two terms which is from return to equity and from equity to return is bi-directional Granger causality . Banks? desire for not allocating their some profit and ıncreasing in their equity is accord with self-financing . In this grade, direction of causality is expected as being from return to equity. On the other hand, capital sufficiency rate increase by means of constitutional regulation and inspection by directing the banks to the risky investment causes direction of causality to be from equity to return . the aim of this study is to investigate relations of return and equity in banking sector and to reveal affects of Basel capital sufficiency regulation on economy .Quarterly data between 1993:2 and 2009:1 of the banks in Turkey were analyzed by using coıntegration and granger causality technique and from return to equity and from equity to return bi-directional causality relation was found at the end of this study. These findings are accordant with the tradition expectation and they are important for positive contributions regarding discussion about capital sufficiency case.