Bank Capital And Risk Taking
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| Author | : Mr.Giovanni Dell'Ariccia |
| Publisher | : International Monetary Fund |
| Total Pages | : 41 |
| Release | : 2013-06-06 |
| Genre | : Business & Economics |
| ISBN | : 1484381130 |
We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.
| Author | : Stéphanie M. Stolz |
| Publisher | : Springer Science & Business Media |
| Total Pages | : 163 |
| Release | : 2007-10-24 |
| Genre | : Business & Economics |
| ISBN | : 3540485457 |
The year-long consultations on Basel II mirror the international popularity of capital requirements as a regulatory instrument. Yet, the impact of capital requirements on banks' behavior is not fully understood. The aim of this study is to contribute to this understanding.
| Author | : Mr.Luc Laeven |
| Publisher | : International Monetary Fund |
| Total Pages | : 38 |
| Release | : 2010-12-01 |
| Genre | : Business & Economics |
| ISBN | : 1455210838 |
We provide a theoretical foundation for the claim that prolonged periods of easy monetary conditions increase bank risk taking. The net effect of a monetary policy change on bank monitoring (an inverse measure of risk taking) depends on the balance of three forces: interest rate pass-through, risk shifting, and leverage. When banks can adjust their capital structures, a monetary easing leads to greater leverage and lower monitoring. However, if a bank's capital structure is fixed, the balance depends on the degree of bank capitalization: when facing a policy rate cut, well capitalized banks decrease monitoring, while highly levered banks increase it. Further, the balance of these effects depends on the structure and contestability of the banking industry, and is therefore likely to vary across countries and over time.
| Author | : Natalya Martynova |
| Publisher | : International Monetary Fund |
| Total Pages | : 44 |
| Release | : 2015-11-25 |
| Genre | : Business & Economics |
| ISBN | : 1513565818 |
Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
| Author | : Ouarda Merrouche |
| Publisher | : International Monetary Fund |
| Total Pages | : 38 |
| Release | : 2010-12-01 |
| Genre | : Business & Economics |
| ISBN | : 1455254878 |
Using a multi-country panel of banks, we study whether better capitalized banks experienced higher stock returns during the financial crisis. We differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the tangible equity ratio. We find several results: (i) before the crisis, differences in capital did not have much impact on stock returns; (ii) during the crisis, a stronger capital position was associated with better stock market performance, most markedly for larger banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) higher quality forms of capital, such as Tier 1 capital and tangible common equity, were more relevant.
| Author | : |
| Publisher | : Lulu.com |
| Total Pages | : 294 |
| Release | : 2004 |
| Genre | : Bank capital |
| ISBN | : 9291316695 |
| Author | : Alistair Milne |
| Publisher | : |
| Total Pages | : 47 |
| Release | : 1998 |
| Genre | : Bank capital |
| ISBN | : |
| Author | : Michael Ohlrogge |
| Publisher | : |
| Total Pages | : 86 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
Does high leverage incentivize banks to systematically originate and hold riskier loans? I construct a novel data set consisting of 3 million small business and home mortgage loans, matched to the specific banks that originated them and verified to be held on bank portfolios, rather than sold. I measure the capital ratio (the inverse of the leverage ratio, defined as equity divided by asset value) for each bank at the time of each loan's origination. After controlling for both bank and time fixed effects, a one point increase in Tier 1 capital ratios (e.g. from 12% to 13%) is associated with a 4.9% decrease in the default risk of mortgage loans held on portfolio (from a mean foreclosure rate of 4.3% to 4.1% for loans originated between 2003 and 2012). When considering the average capital of banks in US counties between 2003 and 2006, a one point increase in Tier 1 capital ratios is associated with a 4.4% reduction in foreclosures between 2007 and 2012. These results are robust to an instrumental variables strategy for predicting bank capital, a wide range of measures of bank capital, different types of banks, types of loans, and time periods.
| Author | : Stéphanie Stolz |
| Publisher | : |
| Total Pages | : 44 |
| Release | : 2002 |
| Genre | : |
| ISBN | : |
| Author | : Francesco Saita |
| Publisher | : Elsevier |
| Total Pages | : 276 |
| Release | : 2010-07-26 |
| Genre | : Business & Economics |
| ISBN | : 0080471064 |
Value at Risk and Bank Capital Management offers a unique combination of concise, expert academic analysis of the latest technical VaR measures and their applications, and the practical realities of bank decision making about capital management and capital allocation. The book contains concise, expert analysis of the latest technical VaR measures but without the highly mathematical component of other books. It discusses practical applications of these measures in the real world of banking, focusing on effective decision making for capital management and allocation. The author, Francesco Saita, is based at Bocconi University in Milan, Italy, one of the foremost institutions for banking in Europe. He provides readers with his extensive academic and theoretical expertise combined with his practical and real-world understanding of bank structure, organizational constraints, and decision-making processes. This book is recommended for graduate students in master's or Ph.D. programs in finance/banking and bankers and risk managers involved in capital allocation and portfolio management. Contains concise, expert analysis of the latest technical VaR measures but without the highly mathematical component of other books Discusses practical applications of these measures in the real world of banking, focusing on effective decision making for capital management and allocation Author is based at Bocconi University in Milan, Italy, one of the foremost institutions for banking in Europe
