Capital requirements and bank behavior : a case study of the DNB Bank Group

The Basel III Capital Accord was introduced as a regulatory response to the financial crisis. Lack of sufficient capital requirements for banks was an important lesson learned after several financial institutions went bankrupt. By strengthening the balance sheet of banks, t he Basel III Accord aims to prevent future crisis and bank distress. When banks’ regulatory e nvironment is changed through increased capital requirements, they are forced to adapt their behavior. The object of this thesis is to examine how Norwegian banks in general and specifically the DNB Bank Group, has adapted to a situation where its capital ratios are becoming increasingly constrained by regulation. The ultimate aim of the thesis is to study whether the DNB Bank Group is able to fulfill the new capital requirements being introduced gradually towards 1 July 2016 without issuing equity. An ana lysis of the Norwegian banks’ behavior in the period 2009 - 2013 indicates that banks have primarily adapted to the increased capital requirements through issuing equity capital or retaining earnings. The analysis shows that Norwegian banks are on the track to fulfilling the capital requirements set by the Norwegian Ministry of Finance. In order to conduct an in - depth analysis, a case study of the DNB Bank Group was conducted. The bank has implemented several measures which strengthens the balance sheet. Through an analysis of the DNB Bank Group’s financials , projected until the second quarter of 2016, I can conclude that given the assumptions applied in the baseline case, the bank is able to fulfill the capital requirements without having to issue equity