Bank Capital Ratios Across Countries: Why Do They Vary?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The authors thank James R. Barth, Robert Bliss, Diana Hancock, Mark Flannery, Charles Goodhart, Edward Kane, Geoffrey Miller, Mitchell Petersen, Triphon Phumiwasana, participants at the Finlawmetrics 2008 Conference at Bocconi University, and an anonymous reviewer for valuable comments and suggestions on earlier versions of this paper. The research assistance of Syed Hussain is greatly appreciated. The views expressed here are the authors' and not necessarily those of the Federal Reserve Banks of Atlanta and Chicago or the Federal Reserve System. Any remaining errors are the authors' responsibility. Terms of use: Documents in EconStor mayPlease address questions regarding content to Elijah Brewer III, Finance Department, DePaul University, Suite 6100, 1 East Jackson Blvd., Chicago, IL 60604, ebrewer@depaul.edu, and the Federal Reserve Bank of Chicago, 230 South Lasalle Street, Chicago, IL 60604-1413; George G. Kaufman, College of Business Administration, Loyola University Chicago, 1 East Pearson Street, Chicago, IL 60611-2196, 312-915-7075, gkaufma@luc.edu, and the Federal Reserve Bank of Chicago, 230 South LaSalle Street, Chicago, IL 60604-1413; and Larry D. Wall, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, larry.wall@atl.frb.org. Federal Reserve Bank of Atlanta working papers, including revised versions, are available on the Atlanta Fed's Web site at www.frbatlanta.org. Click "Publications" and then "Working Papers." Use the WebScriber Service (at www.frbatlanta.org) to receive e-mail notifications about new papers. Abstract: This paper extends the literature on bank capital structure by modeling capital structure as a function of important public policy and bank regulatory characteristics of the home country, as well as of bank-specific variables, country-level macroeconomic conditions, and country-level financial characteristics. The model is estimated with annual data from 1992 to 2005 for an unbalanced panel of the seventy-eight largest private banks in the world headquartered in twelve industrial countries. The results indicate that bank capital ratios are significantly affected in the hypothesized directions by most of the bank-specific variables. Several of the country characteristic and policy variables are also significant with the predicted sign: Banks maintain higher capital ratios in home countries in which the bank sector is relatively smaller and in countries that practice prompt correct...

Bank‐level and country‐level determinants of bank capital structure and funding sources

“…For example, the elasticity of market (book) leverage to profitability, measured by ROAA, is −0.053 for our sample, compared with that of −0.018 in Gropp and Heider (2010). Our results are relatively consistent with those of Brewer III et al (2008), who find that size is negatively related to banks' equity ratios. Consistent with the corporate finance view, leverage decreases with profitability, suggesting that banks with greater internal funds are less likely to tap into the external capital market and hence have lower leverage.…”

“…1 Putting it differently, standard corporate finance theories should have little power in explaining the crosssectional variation in leverage for banks. Barth, Caprio, and Levine (2005), Berger, Herring, and Szegö (1995), and Brewer III, Kaufman, and Wall (2008) find that historically banks hold higher levels of capital than the regulatory minimum. Interestingly, the Tier 1 capital ratio shows considerable variation.…”

Basel III: Long‐term Impact on Economic Performance and Fluctuations

“…For an analysis of differences in capital ratios across countries see, among others, Brewer et al . ().…”

The Determinants of Global Bank Credit-Default-Swap Spreads

“…Such limited variation in leverage could exaggerate the credit-spread puzzle in the banking industry. However, some banks may choose to hold additional levels of capital buffers in excess of the regulatory requirement and hence have lower leverage to reduce the probability that they have to raise costly equity or suffer from exogenous shocks in case they occur (Barth et al 2006;Berger et al 1995;Brewer et al 2008;Diamond and Rajan 2000;Flannery 1994;Tian et al 2013). Therefore, banks can have optimal leverage ratios cross-sectionally just as nonfinancial firms do.…”