Australian banks are widely considered to have fared far better during the Global Financial Crisis than their global counterparts, continuing to display solid earnings, good capitalization and strong credit ratings. Nonetheless, Australian banks experienced significant deterioration in the...

In this paper, we develop a new capital adequacy buffer model (CABM) which is sensitive to dynamic economic circumstances. The model, which measures additional bank capital required to compensate for fluctuating credit risk, is a novel combination of the Merton structural model which measures...