How do banks determine capital? Evidence from Germany

We analyse whether the determinants or capital round in the previous literature hold for the special German banking sector comprising three characteristic banking groups including savings banks, cooperative banks and other banks, which differ regarding their ownership and their access to the capital markeL Through the use of accounting data from German banks between 1992 and 2001 we flnd evidence in accordance with the buffer theory of capital for all German banking groups. Furthermore, we also detect some remarkable differences between the three banking groups regarding their determination of capital due to institutional characteristics.