Bank charter values and capital levels: An international comparison

Allen, Linda; Rai, Anoop

doi:10.1016/0148-6195(96)00013-6

Cited by 27 publications

(21 citation statements)

References 7 publications

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“…Because the replacement cost of assets generally is not available, proxies for Q generally are used in the literature. We adopt the standard approach of proxying Q by the ratio of the market value of equity plus the book value of liabilities divided by the book value of assets (e.g., Allen and Rai, 1996;Shin and Stulz, 2000). The book value of assets is likely to be a better proxy for replacement cost for financial institutions than for industrial firms, because the loans and financial assets owned by institutions are generally closer to replacement cost than the plant and equipment that constitutes most of the assets of industrials.…”

Section: Testing Hypotheses 2-4mentioning

confidence: 99%

The market value impact of operational loss events for US banks and insurers

Cummins

Lewis²,

Wei

2006

Journal of Banking & Finance

214

113

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Section: Testing Hypotheses 2-4mentioning

confidence: 99%

The market value impact of operational loss events for US banks and insurers

Cummins

Lewis²,

Wei

2006

Journal of Banking & Finance

214

113

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“…In contrast to the above two types of studies, a third strand of studies shows that banks usually hold capital ratios well above the minimum capital requirements (i.e., capital buffers) and generally risk-based capital requirements have a negligible effect on bank risk-taking behavior [23][24][25]. Due to holding capital ratios well above regulatory limits, banks are not constrained by capital regulation and have their own target capital and risk-taking levels.…”

Section: Literature Reviewmentioning

confidence: 99%

Capital Regulation and Bank Risk-Taking Behavior: Evidence from Pakistan

Ashraf

Arshad

Yuan-cheng

2016

IJFS

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Abstract:In response to the global financial crisis of [2007][2008][2009], risk-based capital requirements have been reinforced in the new Basel III Accord to counter excessive bank risk-taking behavior. However, prior theoretical as well as empirical literature that studies the impact of risk-based capital requirements on bank risk-taking behavior is inconclusive. The primary purpose of this paper is to examine the impact of risk-based capital requirements on bank risk-taking behavior, using a panel dataset of 21 listed commercial banks of Pakistan over the period [2005][2006][2007][2008][2009][2010][2011][2012]. Purely regulatory measures of bank capital, capital adequacy ratio, and bank assets portfolio risk, risk-weighted assets to total assets ratio, are used for the main analysis. Recently developed small N panel methods (bias corrected least squares dummy variable (LSDVC) method and system GMM method with instruments collapse option) are used to control for panel fixed effects, dynamic dependent variables, and endogenous independent variables. Overall, the results suggest that commercial banks have reduced assets portfolio risk in response to stringent risk-based capital requirements. Results also confirm that all banks having risk-based capital ratios either lower or higher than the regulatory required limits, have decreased portfolio risk in response to stringent risk-based capital requirements. The results are robust to alternative proxies of bank risk-taking, alternative estimation methods, and alternative samples.

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“…In particular, effective enforcement of capital requirements may constitute the key incentive mechanism for banks to curtail their portfolio and leverage risk, as well as reduce the value of their deposit insurance put option (see e.g., Flannery, 1989;Milne, 2002). Moreover, supervisory forbearance may be viewed as a form of government subsidy, inducing banks to increase their risky assets (Allen and Rai, 1996;Galloway et al, 1997).…”

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confidence: 99%

Supervisory Effectiveness and Bank Risk*

2011

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This paper investigates the role of banking supervision in controlling bank risk. Banking supervision is measured in terms of enforcement outputs (i.e., on-site audits and sanctions).Our results show an inverted U-shaped relationship between on-site audits and bank risk, while the relationship between sanctions and risk appears to be linear and negative. We also consider the combined effect of effective supervision and banking regulation (in the form of capital and market discipline requirements) on bank risk. We find that effective supervision and market discipline requirements are important and complementary mechanisms in reducing bank fragility. This is in contrast to capital requirements, which prove to be rather futile in controlling bank risk, even when supplemented with a higher volume of on-site audits and sanctions.JEL Classifications: G21; G32; G38

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Bank charter values and capital levels: An international comparison

Cited by 27 publications

References 7 publications

The market value impact of operational loss events for US banks and insurers

The market value impact of operational loss events for US banks and insurers

Capital Regulation and Bank Risk-Taking Behavior: Evidence from Pakistan

Supervisory Effectiveness and Bank Risk*

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