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The relationship between risk and capital in Swiss commercial banks: a panel study

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  • Robert Bichsel
  • Jurg Blum
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    Abstract

    The relationship between changes in risk and changes in leverage for a panel of Swiss banks is investigated. Using market data for risk and both accounting and market data for capital over the period between 1990 and 2002, a positive correlation is found between changes in capital and changes in risk, i.e., higher levels of capital are associated with higher levels of risk. Despite this positive correlation, however, a significant relationship between the default probability and the capital ratio is not found.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/0960310042000233881
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 14 (2004)
    Issue (Month): 8 ()
    Pages: 591-597

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    Handle: RePEc:taf:apfiec:v:14:y:2004:i:8:p:591-597

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    Web page: http://www.tandfonline.com/RAFE20

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    1. Arturo Estrella & Sangkyun Park & Stavros Peristiani, 2000. "Capital ratios as predictors of bank failure," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 33-52.
    2. Koehn, Michael & Santomero, Anthony M, 1980. " Regulation of Bank Capital and Portfolio Risk," Journal of Finance, American Finance Association, vol. 35(5), pages 1235-44, December.
    3. Godfrey, L. G. & Hutton, J. P., 1994. "Discriminating between errors-in- variables/simultaneity and misspecification in linear regression models," Economics Letters, Elsevier, vol. 44(4), pages 359-364, April.
    4. Shrieves, Ronald E. & Dahl, Drew, 1992. "The relationship between risk and capital in commercial banks," Journal of Banking & Finance, Elsevier, vol. 16(2), pages 439-457, April.
    5. Furlong, Frederick T. & Keeley, Michael C., 1989. "Capital regulation and bank risk-taking: A note," Journal of Banking & Finance, Elsevier, vol. 13(6), pages 883-891, December.
    6. Kim, Daesik & Santomero, Anthony M, 1988. " Risk in Banking and Capital Regulation," Journal of Finance, American Finance Association, vol. 43(5), pages 1219-33, December.
    7. Frederick T. Furlong & Michael C. Keeley, 1991. "Capital regulation and bank risk-taking: a note (reprinted from Journal of Banking and Finance)," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 34-39.
    8. Ronn, Ehud I & Verma, Avinash K, 1986. " Pricing Risk-Adjusted Deposit Insurance: An Option-Based Model," Journal of Finance, American Finance Association, vol. 41(4), pages 871-95, September.
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    Cited by:
    1. Enrico Perotti & Lev Ratnovski & Razvan Vlahu, 2011. "Capital Regulation and Tail Risk," DNB Working Papers 307, Netherlands Central Bank, Research Department.
    2. Wahyoe Soedarmono & Philippe Rous & Amine Tarazi, 2011. "Bank Capital and Self-Interested Managers: Evidence from Indonesia," Working Papers hal-00918584, HAL.
    3. Neuberger, Doris & Rissi, Roger, 2012. "Macroprudential banking regulation: Does one size fit all?," Thuenen-Series of Applied Economic Theory 124, University of Rostock, Institute of Economics.

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