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Wealth effects of bank holding company securities issuance and loan growth under the risk-based capital requirements

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  • Elizabeth S. Laderman

Abstract

This paper tests a two-part hypothesis: first, that during the period between publication of the risk-based capital requirements in early 1989 and the end of 1992, bank holding companies (BHCs) faced a statistically significant decrease in stock returns if they issued new common stock; second, that this discouraged new common stock issuance and therefore, in effect, forced BHCs with Tier 1 and/or leverage capital-to-assets ratios below the regulatory minima to decrease loans outstanding more than did BHCs deficient only in their total capital ratios. Empirical evidence supporting both parts of the hypothesis is presented.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (1994)
Issue (Month): ()
Pages: 30-41

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Handle: RePEc:fip:fedfer:y:1994:p:30-41:n:2

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Keywords: Bank holding companies ; Bank loans ; Risk ; Bank capital ; Bank stocks ; Stock - Prices;

References

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  1. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
  2. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
  3. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  4. Larry D. Wall & Pamela P. Peterson, 1988. "Valuation effects of new capital issues by large bank holding companies," Working Paper 88-7, Federal Reserve Bank of Atlanta.
  5. Mikkelson, Wayne H. & Partch, M. Megan, 1986. "Valuation effects of security offerings and the issuance process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 31-60.
  6. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  7. Smith, Clifford Jr., 1986. "Investment banking and the capital acquisition process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 3-29.
  8. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  9. Michael C. Keeley, 1989. "The stock price effects of bank holding company securities issuance," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 3-19.
  10. Wansley, James W & Dhillon, Upinder S, 1989. "Determinants of Valuation Effects for Security Offerings of Commercial Bank Holding Companies," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(3), pages 217-33, Fall.
  11. Fred Furlong, 1993. "Adequate's not good enough," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep22.
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Cited by:
  1. Laetitia Lepetit & Amine Tarazi & Nadia Zedek, 2012. "Bank Regulatory Capital Adjustment and Ultimate Ownership Structure: Evidence from European Commercial Banks," Working Papers hal-00918577, HAL.
  2. Stéphanie Stolz, 2002. "The Relationship between Bank Capital, Risk-Taking, and Capital Regulation: A Review of the Literature," Kiel Working Papers 1105, Kiel Institute for the World Economy.
  3. Laetitia Lepetit & Amine Tarazi & Nadia Zedek, 2012. "Ultimate Ownership Structure and Bank Regulatory Capital Adjustment: Evidence from European Commercial Banks," Working Papers hal-00918579, HAL.
  4. Jokipii, Terhi & Milne, Alistair, 2011. "Bank capital buffer and risk adjustment decisions," Journal of Financial Stability, Elsevier, vol. 7(3), pages 165-178, August.
  5. Elizabeth Laderman, 1994. "Risk-based capital requirements and loan growth," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct14.
  6. Jacques, Kevin & Nigro, Peter, 1997. "Risk-based capital, portfolio risk, and bank capital: A simultaneous equations approach," Journal of Economics and Business, Elsevier, vol. 49(6), pages 533-547.

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