Risk and risk-based capital of U.S. bank holding companies

Hogan, Thomas L.; Meredith, Neil R.

doi:10.1007/s11149-015-9289-8

Cited by 17 publications

(8 citation statements)

References 12 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: 91%

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: 91%

Factors related to the failure of FDIC-insured US banks

Maura-Pérez¹,

Romero-Perez²

2021

JFRC

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“…We then introduce a more complex regression model that includes bank‐level and economy‐level control variables. Following Hogan () and Hogan and Meredith (), we also introduce an independent variable of the sum of the capital and RBC ratios, which allows for a more precise estimation of differences among these ratios.…”

Section: Methodsmentioning

confidence: 99%

“…In addition to the probability of failure, we use dependent variables of nonperforming loans and loan charge‐offs, which are strong indicators of bank soundness. Following Hogan and Meredith (), we perform our analysis first by using both the capital and RBC ratios together and then employ a variable for the sum of the capital and RBC ratios, which provides statistical evidence of the difference between the two. We find, consistent with the thesis of Haldane and Madouros () but contrary to their evidence, that simple capital ratios are better than RBC ratios as predictors of bank risk and failure.…”

Section: Introductionmentioning

confidence: 99%

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Evaluating risk‐based capital regulation

2018

Self Cite

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This paper evaluates the effectiveness of risk‐based capital (RBC) regulation and challenges some evidence from the well‐known study by Haldane and Madouros (2012). We reconsider the evidence on the relationship between RBC ratios and failures of US banks from Haldane and Madouros (2012) and find their results are not robust to changes in the sample period or regression model. Using data on US commercial banks from 2000 through 2015 and an improved regression model, we compare banks’ RBC ratios and simple capital ratios as predictors of bank risk. We find simple capital ratios to be significantly better than complex RBC ratios as predictors of bank risk.

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“…whereas rank correlations increase when required capitalization is a function of total assets." Hogan (2015) finds that leverage ratios are better than RBC ratios at predicting US banks' stock return volatility and Z-scores, while Hogan and Meredith (2016) similarly find that leverage ratios are better predictors of BHC balance sheet and market-based measures of risk such as equity tail risk and equity-implied bank risk. 8 Two further findings from these studies are worthy of note.…”

Section: Benefits Of Rbc Rulesmentioning

confidence: 99%

A Review of the Regulatory Impact Analysis of Risk-Based Capital and Related Liquidity Rules

Hogan

2021

JRFM

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This paper reviews the cost-benefit analysis, or “regulatory impact analysis” (RIA), in US bank regulators’ risk-based capital (RBC) rule proposals. We review the principles of cost-benefit analysis and its application by US bank regulators. We provide a brief background on RBC rules and review the literature on their costs and benefits. We then evaluate 27 proposed RBC rules and related rules on bank liquidity. We find that nine of the 27 rules include RIAs. Five of the RIAs claim the proposed rule will create net benefits, but none provide quantitative evidence that the benefits exceed the costs. In two proposals, the evidence cited indicates the rules’ net benefits may actually be negative.

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Risk and risk-based capital of U.S. bank holding companies

Cited by 17 publications

References 12 publications

Factors related to the failure of FDIC-insured US banks

Factors related to the failure of FDIC-insured US banks

Evaluating risk‐based capital regulation

A Review of the Regulatory Impact Analysis of Risk-Based Capital and Related Liquidity Rules

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