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Risk-based capital regulation revisited: evidence from the early 2000s

Author

Listed:
  • Thomas L. Hogan
  • Neil R. Meredith
  • Xuhao (Harry) Pan

Abstract

Purpose - – The purpose of this study is to replicate Avery and Berger’s (1991) analysis using data from 2001 through 2011. Although risk-based capital (RBC) regulation is a key component of US banking regulation, empirical evidence of the effectiveness of these regulations has been mixed. Among the first studies of RBC regulation, Avery and Berger (1991) provide evidence from data on US banks that new RBC regulations outperformed old capital regulations from 1982 through 1989. Design/methodology/approach - – Using data from the Federal Reserve’s Call Reports, the authors compare banks’ capital ratios and RBC ratios to five measures of bank performance: income, standard deviation of income, non-performing loans, loan charge-offs and probability of failure. Findings - – Consistent with Avery and Berger (1991), the authors find banks’ risk-weighted assets to be significant predictors of their future performance and that RBC ratios outperform regular capital ratios as predictors of risk. Originality/value - – The study improves on Avery and Berger (1991) by using an updated data set from 2001 through 2011. The authors also discuss some potential limitations of this method of analysis.

Suggested Citation

  • Thomas L. Hogan & Neil R. Meredith & Xuhao (Harry) Pan, 2015. "Risk-based capital regulation revisited: evidence from the early 2000s," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 23(2), pages 115-134, May.
    • Handle: RePEc:eme:jfrcpp:v:23:y:2015:i:2:p:115-134
    DOI: 10.1108/JFRC-02-2014-0006
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    Citations

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    Cited by:

    1. Muhammad Ahmed Butt & Paul Katuse & Juliana Namada, 2019. "Government’s role as moderator in relationship of porter’s diamond factor conditions and firm’s performance," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 8(6), pages 40-48, October.
    2. Thomas L. Hogan, 2021. "A Review of the Regulatory Impact Analysis of Risk-Based Capital and Related Liquidity Rules," JRFM, MDPI, vol. 14(1), pages 1-29, January.
    3. Miller, Steph & Hoarty, Blake, 2020. "On Regulation and Excess Reserves: The Case of Basel III," Working Papers 10243, George Mason University, Mercatus Center.

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