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

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Author Info
Robert Bichsel
Jürg Blum
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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Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 14 (2004)
Issue (Month): 8 (May)
Pages: 591-597
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Handle: RePEc:taf:apfiec:v:14:y:2004:i:8:p:591-597

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  1. 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. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. 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. [Downloadable!]
  4. 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. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
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