MARC Record from Library of Congress

LEADER: 02666cam a22002897a 4500
001 2008613009
003 DLC
005 20081010090830.0
007 cr |||||||||||
008 081009s2008 mou sb f000 0 eng
010 $a 2008613009
040 $aDLC$cDLC
050 00 $aHB1
245 00 $aHow do large banking organizations manage their capital ratio$h[electronic resource] /$cAllen Berger ... [et al.].
260 $aKansas City [Mo.] :$bResearch Division, Federal Reserve Bank of Kansas City,$c[2008]
490 0 $aRWP ;$v08-01
538 $aSystem requirements: Adobe Acrobat Reader.
538 $aMode of access: World Wide Web.
500 $aTitle from PDF file (viewed on Oct. 10, 2008).
500 $a"April 2008."
530 $aAlso available in print.
520 3 $aLarge banking organizations in the U.S. hold significantly more equity capital than the minimum required by bank regulators. This capital cushion has built up during a period of unusual profitability for the banking system, leading some observers to argue that the capital merely reflects recent profits. Others contend that the banks deliberately choose target capital levels based on their risk exposures and their counterparties' sensitivities to default risk. In either case, the existence of "excess" capital makes it difficult to observe how banks manage their capital levels, particularly in response to regulatory changes (such as Basel II). We propose several hypotheses to explain this "excess" capital, and test these hypotheses using annual panel data for large, publicly traded U.S. bank holding companies (BHCs) from 1992 through 2006, and an innovative partial adjustment approach that allows both the target capital ratios and the speed of adjustment toward those targets to vary with firm-specific characteristics. We find evidence to suggest that large BHCs actively managed their capital ratios during our sample period. Our tests suggest that large BHCs choose target capital levels substantially above well-capitalized regulatory minima; that these targets increase with BHC risk but decrease with BHC size; that BHCs adjust toward these targets relatively quickly; and that adjustment speeds are faster for poorly capitalized BHCs, but slower (ceteris paribus) for BHCs under severe regulatory pressure.
504 $aIncludes bibliographical references.
653 $aBanks ;$acapital management ;$acapital regulation ;$apartial adjustment models
700 1 $aBerger, Allen N.
710 2 $aFederal Reserve Bank of Kansas City.$bResearch Division.
856 42 $3Abstract page with link to full-text PDF report$uhttp://www.kc.frb.org/PUBLICAT/RESWKPAP/RWP08-01.htm