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Bank Capital

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Author Info

  • Ouarda Merrouche
  • Enrica Detragiache
  • Asli Demirgüç-Kunt

Abstract

Using a multi-country panel of banks, we study whether better capitalized banks experienced higher stock returns during the financial crisis. We differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the tangible equity ratio. We find several results: (i) before the crisis, differences in capital did not have much impact on stock returns; (ii) during the crisis, a stronger capital position was associated with better stock market performance, most markedly for larger banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) higher quality forms of capital, such as Tier 1 capital and tangible common equity, were more relevant.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/286.

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Length: 35
Date of creation: 01 Dec 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/286

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Related research

Keywords: Banks; Economic models; Global Financial Crisis 2008-2009; Risk management; Stock markets; stock returns; bank capital; stock market; bank stock; tier 2 capital; retained earnings; subordinated debt; banking; capital regulation; tier 1 capital; bank size; deposit insurance; bank risk; recapitalization; stock price; bank performance; bank capital regulation; financial institutions; bond; capital requirement; off balance sheet; risk-free interest rate; corporate bond; capital adequacy; bank risk-taking; bank regulation; bank equity; stock prices; bank value; equity market; bank research; financial intermediaries; financial sector; stock market crashes; financial system; stock price volatility; return on equity; banking crises; financial organizations; bank balance sheet; bank assets; bank of international settlements; bank supervision; bank risk- taking; bank failures; bank asset; financial innovation; banks with assets; bonds; bank asset quality; cash flows; bank policy; bank owners; financial intermediation; loan loss provision; future cash flows; bond yield; bank creditors; banking sector; national bank; bank liquidity; bank capitalization; stockholders; banks with asset; bank activities; bank data; moral hazard; bond yields; banking stability; capital adequacy ratio; government bond; financial markets; financial stability; liquidity support; bond spread; financial policies; banking supervision; liquidity ratio; banking theory; stock valuation; bank portfolios;

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Citations

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Cited by:
  1. Neville Arjani & Graydon Paulin, 2013. "Lessons from the Financial Crisis: Bank Performance and Regulatory Reform," Discussion Papers 13-4, Bank of Canada.
  2. Altunbas, Yener & Gambacorta, Leonardo & Marques-Ibanez, David, 2012. "Do bank characteristics influence the effect of monetary policy on bank risk?," Economics Letters, Elsevier, vol. 117(1), pages 220-222.
  3. Mark Carlson & Hui Shan & Missaka Warusawitharana, 2011. "Capital ratios and bank lending: a matched bank approach," Finance and Economics Discussion Series 2011-34, Board of Governors of the Federal Reserve System (U.S.).
  4. Acharya, Viral V & Schnabl, Philipp & Suarez, Gustavo, 2012. "Securitization Without Risk Transfer," CEPR Discussion Papers 8769, C.E.P.R. Discussion Papers.
  5. David G. Mayes & Hanno Stremmel, 2014. "The Effectiveness of Capital Adequacy Measures in Predicting Bank Distress," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  6. Andrew G. Haldane & Vasileios Madouros, 2012. "El perro y el frisbee," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 14(27), pages 13-56, July-Dece.
  7. Maria del Pilar Castillo & Giácomo Balbinotto, 2012. "Las FARC y los costos del secuestro," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 14(27), pages 147-164, July-Dece.
  8. Chen, Sichong, 2013. "How do leverage ratios affect bank share performance during financial crises: The Japanese experience of the late 1990s," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 1-18.
  9. Fiordelisi, Franco & Marqués-Ibañez, David, 2013. "Is bank default risk systematic?," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 2000-2010.
  10. Hoque, Hafiz, 2013. "From the credit crisis to the sovereign debt crisis: Determinants of share price performance of global banks," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 334-350.

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