Evaluating Risk-Based Capital Regulation

Hogan, Thomas L.; Meredith, Neil R.; Pan, Xuhao

doi:10.2139/ssrn.2209374

Cited by 8 publications

(7 citation statements)

References 10 publications

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“…When looking at the results, the relevance of these two ratios become evident for the crisis and post-crisis period. These results are consistent with existing literature that shows that non-riskbased capital ratios relate more to bank performance than risk-based capital ratios (Hogan, 2015;Hogan and Meredith, 2016;Hogan et al, 2018). Furthermore, there is evidence provided by recent literature (Hogan and Meredith (2016;Hogan et al, 2018) that risk-based capital measures actually increases risk in the banking system and are not effective at predicting bank failure.…”

Section: Discussionsupporting

confidence: 90%

Factors related to the failure of FDIC-insured US banks

Maura-Pérez¹,

Romero-Perez²

2021

JFRC

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Purpose This study aims to analyze the factors related to the failure of 535 Federal Deposit Insurance Corporation (FDIC)-Insured United States banks in conjunction with the 2008 financial crisis. Design/methodology/approach The research consists of an analysis of the following three five-year partitions: pre-crisis (2002–2006), crisis (2007–2011) and post-crisis (2012–2016). The main hypothesis is that the factors explaining bank failures vary by period. Using logistic regression analysis, the authors identify the desirable models by period based on three model selection strategies. Findings Liquidity and non-risk-based capital ratios are important explanatory factors in all three periods. As the authors can see from the results, when comparing the full period (2002–2016) and the three five-year period partitions (2002–2006, 2007–2011 and 2012–2016), the ratios change from period to period, but they measure the same financial areas of concern in different contexts as follows: liquidity, leverage/risk exposure and capital adequacy. Risk-based capital ratios are not effective predictors of bank failures. Originality/value Recent academic studies have analyzed bank failures during periods that cover the years before, during and after the crisis, but most of these studies discuss bank failures in the forecasting context only. This study includes an analysis of failure determinants during pre-crisis, crisis and post-crisis subperiods based on the FDIC monitoring system of bank failures and identifies what ratios are more relevant during each period and how they change from period to period.

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Section: Discussionsupporting

confidence: 90%

Factors related to the failure of FDIC-insured US banks

Maura-Pérez¹,

Romero-Perez²

2021

JFRC

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“…This range is higher than most in the related literature. Avery and Berger (1991) and Hogan et al (2013) Table 6) finds R-squared statistics of 53% and 61%.…”

Section: Resultsmentioning

confidence: 97%

Capital and risk in commercial banking: A comparison of capital and risk-based capital ratios

Hogan

2015

The Quarterly Review of Economics and Finance

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“…In this context, several empirical studies prove to favor a positive relationship between risk and capital, highlighting the regulators’ preference of capital as a means to address risky activities. This positive relationship between capital and risk has also seem stressed by Hogan et al (2013), suggesting that capital whereby loss chocks could will be attenuated or mitigated, and banks’ solvency could be maintained.…”

Section: Results and Interpretationsmentioning

confidence: 97%

“…Similarly, Hogan et al (2013) have maintained that equity capital may well be considered as a regulator against losses. Therefore, raising equity capital can help reduce the credit risk, as measured by the returns on shares’ volatility and z -score indicator.…”

Section: Literature Reviewmentioning

confidence: 99%

The risk-capital-efficiency trilogy

Louati

Louhichi

Boujelbène

2016

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Purpose Based on a matched sample of 34 Islamic banks and 89 conventional ones, the purpose of this paper is to analyze and compare the risk-capital-efficiency interconnection. Design/methodology/approach Based on the triple square model (3SLS), two major risk measures have been accounted for, namely, the ratio of non-performing loans to total loans (credit risk) and the z-score indicator (risk insolvency). In addition, certain bank-specific factors as well as macroeconomic ones have also been considered in the model. Findings The reached results appear to reveal that the best capitalized Western banks turn out to be more engaged in an excessive risk-taking behavior, resulting in increased toxic-loan ratios and, simultaneously, a rather shaken stability. Concerning Islamic banks, cost efficiency has proven to have a negative and significant effect on NPLs. However, the capital, technical efficiency, competitiveness and macroeconomic factors turn out to have a significant and positive effect on Islamic banks’ insolvency risk, thus helping promote these banks’ stability. Originality/value In addition to the enrichment of literature regarding dual-banking systems, the authors hope the present work would provide a modest contribution to the regulators belonging to the MENA region and Asia with useful results. In particular, the authors recommend developing some management and monitoring tools whereby the risk-taking behavior of highly capitalized conventional banks could be moderated. As a matter of fact, special attention should be paid to the agency problems prevalent within Islamic financial institutions, particularly the best capitalized ones.

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Evaluating Risk-Based Capital Regulation

Cited by 8 publications

References 10 publications

Factors related to the failure of FDIC-insured US banks

Factors related to the failure of FDIC-insured US banks

Capital and risk in commercial banking: A comparison of capital and risk-based capital ratios

The risk-capital-efficiency trilogy

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