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Capital ratios as predictors of bank failure Author info | Abstract | Publisher info | Download info | Related research | Statistics Arturo Estrella
Sangkyun Park
Stavros Peristiani
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The current review of the 1988 Basel Capital Accord has put the spotlight on the ratios used to assess banks’ capital adequacy. This article examines the effectiveness of three capital ratios—the first based on leverage, the second on gross revenues, and the third on risk-weighted assets—in forecasting bank failure over different time frames. Using 1988-93 data on U.S. banks, the authors find that the simple leverage and gross revenue ratios perform as well as the more complex risk-weighted ratio over one- or two-year horizons. Although the risk-weighted measures prove more accurate in predicting bank failure over longer horizons, the simple ratios are less costly to implement and could function as useful supplementary indicators of capital adequacy.
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Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review .
Volume (Year): (2000)
Issue (Month): Jul ()
Pages: 33-52
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Handle: RePEc:fip:fednep:y:2000:i:jul:p:33-52:n:v.6no.2Contact details of provider: Postal: 33 Liberty Street, New York, NY 10045-0001 Email: Web page: http://www.newyorkfed.org/ More information through EDIRC
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Keywords: Bank failures ; Bank capital ; Banks and banking - Ratio analysis ; Other versions of this item:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Allen N. Berger & Richard J. Herring & Giorgio P. Szegö, 1995.
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Roman Kraeussl, 2003.
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CFS Working Paper Series
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Other versions: Douglas Evanoff & Larry Wall, 2001.
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Journal of Financial Services Research ,
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Fidrmuc, Jarko & Süß, Philipp Johann, 2009.
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Jose E. Gomez-Gonzalez & Nicholas M. Kiefer, .
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Birgit Schmitz, 2007.
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Klaus Schaeck & Simon Wolfe, 2005.
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Money Macro and Finance (MMF) Research Group Conference 2005
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Guo Li & Lee Sanning & Sherrill Shaffer, 2009.
"Statistical Opacity In The U.S. Banking Industry ,"
CAMA Working Papers
2009-16, Australian National University, Centre for Applied Macroeconomic Analysis.
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Gomez-Gonzalez, Jose E. & Kiefer, Nicholas M., 2006.
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Huberto M. Ennis, 2004.
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Daley, J & Matthews, Kent & Whitfield, Keith, 2006.
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Cardiff Economics Working Papers
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Jean-Charles Rochet, 2004.
"Rebalancing the three pillars of Basel II ,"
Economic Policy Review ,
Federal Reserve Bank of New York, issue Sep, pages 7-21.
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Steven Pottier & David Sommer, 2002.
"The Effectiveness of Public and Private Sector Summary Risk Measures in Predicting Insurer Insolvencies ,"
Journal of Financial Services Research ,
Springer, vol. 21(1), pages 101-116, February.
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Rochet, Jean-Charles, 2003.
"Rebalancing the 3 Pillars of Basel 2 ,"
IDEI Working Papers
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Marc Saidenberg & Til Schuermann & May, .
"The New Basel Capital Accord and Questions for Research ,"
Center for Financial Institutions Working Papers
03-14, Wharton School Center for Financial Institutions, University of Pennsylvania.
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John Krainer & Jose A. Lopez, 2004.
"Using securities market information for bank supervisory monitoring ,"
Working Papers in Applied Economic Theory
2004-05, Federal Reserve Bank of San Francisco.
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Other versions: John Krainer & Jose A. Lopez, 2001.
"Incorporating equity market information into supervisory monitoring models ,"
Working Papers in Applied Economic Theory
2001-14, Federal Reserve Bank of San Francisco.
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Other versions: Julapa Jagtiani & James Kolari & Catharine Lemieux & Hwan Shin, 2003.
"Early warning models for bank supervision: Simpler could be better ,"
Economic Perspectives ,
Federal Reserve Bank of Chicago, issue Q III, pages 49-60.
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