In this paper, market model and regulation model employed to examine and compare how banking firm set their capital ratio for 22 commercial banks in Indonesia. The models have been tested by estimating a disequilibrium model using all sample data.. The proposed partial adjustment model is validated by empirical results in both models. A higher adjustment speed to the desired capita ratio is observed in regulatory model than in the market model one. The determinants of the optimal regulatory capital ratio and return on assets have signs accorded with those predicted in the theoritical model and, in many cases are significant. A study of the estimated probabilities of beloging to the regulatory regime according to the observed capital ratio and return on assets allow to validate the theoritical model proposed since the probability of coming from the regulatory model truns out to be higher for banks with a higher observed capital ratio and return on assets. The finding conclude that the CAR regulatory constraint is one of factors related to capital ratio and return on assets of commercial banks which is the most important to achieve the existence of the bank stockholder and financial system. Therefore the pressure of the market forces can be adjustment by the regulatory forces.
