IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v30y2013icp131-140.html
   My bibliography  Save this article

A migration approach for USA banks' capitalization: Are the 00s the same with the 90s?

Author

Listed:
  • Koutras, Vasileios M.
  • Drakos, Konstantinos

Abstract

We conduct a comparison of the two past decades in terms of US banks' capitalization mobility and persistence, adopting a Markov Chain setup, based on the FDIC discretized version of capital ratio. We document several substantial differences in the anatomy of the two periods. In particular, system mobility has shown a step increase in the 00s, and what is more important, mobility takes the form of increased probability of capitalization deterioration. Moreover, the vulnerability of Critically and Significantly Undercapitalized banks has markedly increased, as shown by the corresponding default transition probabilities.

Suggested Citation

  • Koutras, Vasileios M. & Drakos, Konstantinos, 2013. "A migration approach for USA banks' capitalization: Are the 00s the same with the 90s?," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 131-140.
    • Handle: RePEc:eee:finana:v:30:y:2013:i:c:p:131-140
    DOI: 10.1016/j.irfa.2013.06.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521913000793
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2013.06.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Randall Jackson & Alan Murray, 2004. "Alternative Input-Output Matrix Updating Formulations," Economic Systems Research, Taylor & Francis Journals, vol. 16(2), pages 135-148.
    2. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54, January.
    3. Stolz, Stéphanie & Wedow, Michael, 2005. "Banks' regulatory capital buffer and the business cycle: evidence for German savings and cooperative banks," Discussion Paper Series 2: Banking and Financial Studies 2005,07, Deutsche Bundesbank.
    4. Flannery, Mark J & Sorescu, Sorin M, 1996. "Evidence of Bank Market Discipline in Subordinated Debenture Yields: 1983-1991," Journal of Finance, American Finance Association, vol. 51(4), pages 1347-1377, September.
    5. Goldberg, Lawrence G. & Hudgins, Sylvia C., 2002. "Depositor discipline and changing strategies for regulating thrift institutions," Journal of Financial Economics, Elsevier, vol. 63(2), pages 263-274, February.
    6. Jokipii, Terhi & Milne, Alistair, 2008. "The cyclical behaviour of European bank capital buffers," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1440-1451, August.
    7. Bangia, Anil & Diebold, Francis X. & Kronimus, Andre & Schagen, Christian & Schuermann, Til, 2002. "Ratings migration and the business cycle, with application to credit portfolio stress testing," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 445-474, March.
    8. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    9. Andrew Davenport & Kathleen McDill, 2006. "The Depositor Behind the Discipline: A Micro-Level Case Study of Hamilton Bank," Journal of Financial Services Research, Springer;Western Finance Association, vol. 30(1), pages 93-109, August.
    10. 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.
    11. Jafry, Yusuf & Schuermann, Til, 2004. "Measurement, estimation and comparison of credit migration matrices," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2603-2639, November.
    12. Mark J. Flannery & Kasturi P. Rangan, 2008. "What Caused the Bank Capital Build-up of the 1990s?," Review of Finance, European Finance Association, vol. 12(2), pages 391-429.
    13. Schluter, Christian, 1998. "Statistical inference with mobility indices," Economics Letters, Elsevier, vol. 59(2), pages 157-162, May.
    14. Lindquist, Kjersti-Gro, 2004. "Banks' buffer capital: how important is risk," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 493-513, April.
    15. Rebecca Demsetz & Marc R. Saidenberg & Philip E. Strahan, 1996. "Banks with something to lose: the disciplinary role of franchise value," Economic Policy Review, Federal Reserve Bank of New York, vol. 2(Oct), pages 1-14.
    16. Allen Berger & Robert DeYoung & Mark Flannery & David Lee & Özde Öztekin, 2008. "How Do Large Banking Organizations Manage Their Capital Ratios?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 34(2), pages 123-149, December.
    17. Maasoumi, Esfandiar & Zandvakili, Sourushe, 1986. "A class of generalized measures of mobility with applications," Economics Letters, Elsevier, vol. 22(1), pages 97-102.
    18. Geweke, John & Marshall, Robert C & Zarkin, Gary A, 1986. "Mobility Indices in Continuous Time Markov Chains," Econometrica, Econometric Society, vol. 54(6), pages 1407-1423, November.
    19. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    20. Bigard, A & Guillotin, Y & Lucifora, C, 1998. "Earnings Mobility: An International Comparison of Italy and France," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 44(4), pages 535-554, December.
    21. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
    22. A. Bigard & Y. Guillotin & C. Lucifora, 1998. "Earnings Mobility: An International Comparison Of Italy And France," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 44(4), pages 535-554, December.
    23. Shorrocks, A F, 1978. "The Measurement of Mobility," Econometrica, Econometric Society, vol. 46(5), pages 1013-1024, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Koutras, Vasileios M. & Koutras, Markos V. & Yalcin, Femin, 2016. "A simple compound scan statistic useful for modeling insurance and risk management problems," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 202-209.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ballis, Antonis & Drakos, Konstantinos, 2020. "A Markov Chain Analysis for Capitalization Dynamics in the Cryptocurrency Market," MPRA Paper 109329, University Library of Munich, Germany.
    2. Konstantinos Drakos, 2012. "US banks' capitalization speed‐of‐adjustment: a microeconometric approach," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 4(3), pages 270-286, July.
    3. Koutras, Vasileios M. & Koutras, Markos V. & Yalcin, Femin, 2016. "A simple compound scan statistic useful for modeling insurance and risk management problems," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 202-209.
    4. David Martinez-Miera & Rafael Repullo, 2019. "Monetary Policy, Macroprudential Policy, and Financial Stability," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 809-832, August.
    5. Košak, Marko & Li, Shaofang & Lončarski, Igor & Marinč, Matej, 2015. "Quality of bank capital and bank lending behavior during the global financial crisis," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 168-183.
    6. Markus Jäntti & Stephen P. Jenkins, 2013. "Income Mobility," SOEPpapers on Multidisciplinary Panel Data Research 607, DIW Berlin, The German Socio-Economic Panel (SOEP).
    7. Isabelle Distinguin & Caroline Roulet & Amine Tarazi, 2012. "Bank regulatory Capital Buffer and Liquidity: Evidence from US and European Publicly Traded Banks," Working Papers hal-00918468, HAL.
    8. Isabelle Distinguin & Clovis Rugemintwari, 2011. "The Role of Market Discipline on Bank Capital Buffer: Evidence from a Sample of European Banks," Working Papers hal-00916739, HAL.
    9. Distinguin, Isabelle & Roulet, Caroline & Tarazi, Amine, 2013. "Bank regulatory capital and liquidity: Evidence from US and European publicly traded banks," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3295-3317.
    10. Berger, Allen N. & Öztekin, Özde & Roman, Raluca A., 2023. "Geographic deregulation and bank capital structure," Journal of Banking & Finance, Elsevier, vol. 149(C).
    11. Lepetit, Laetitia & Saghi-Zedek, Nadia & Tarazi, Amine, 2015. "Excess control rights, bank capital structure adjustments, and lending," Journal of Financial Economics, Elsevier, vol. 115(3), pages 574-591.
    12. Chau H. A. Le, 2016. "Macro-financial linkages and bank behaviour: evidence from the second-round effects of the global financial crisis on East Asia," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(3), pages 365-387, December.
    13. Trueck, Stefan & Rachev, Svetlozar T., 2008. "Rating Based Modeling of Credit Risk," Elsevier Monographs, Elsevier, edition 1, number 9780123736833.
    14. Frank A Cowell & Christian Schluter, 1998. "Measuring Income Mobility with Dirty Data (published in Ethnic and Racial Studies, 22(3), May 1999)," CASE Papers 016, Centre for Analysis of Social Exclusion, LSE.
    15. Coffinet, Jérôme & Coudert, Virginie & Pop, Adrian & Pouvelle, Cyril, 2012. "Two-way interplays between capital buffers and credit growth: Evidence from French banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(5), pages 1110-1125.
    16. Chris Tsoumas, 2021. "Regulatory enforcement: discipline for BHC-affiliated banks," Empirical Economics, Springer, vol. 60(2), pages 737-772, February.
    17. Frank A Cowell & Christian Schluter, 1998. "Income Mobility: A Robust Approach (published in Income Inequality Measurement: From Theory to Practice, J Silber (ed, Dewenter: Kluver , 1999)," STICERD - Distributional Analysis Research Programme Papers 37, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    18. Boubacar Camara & Laetitia Lepetit & Amine Tarazi, 2013. "Ex ante capital position, changes in the different components of regulatory capital and bank risk," Applied Economics, Taylor & Francis Journals, vol. 45(34), pages 4831-4856, December.
    19. Fuertes, Ana-Maria & Kalotychou, Elena, 2007. "On sovereign credit migration: A study of alternative estimators and rating dynamics," Computational Statistics & Data Analysis, Elsevier, vol. 51(7), pages 3448-3469, April.
    20. Toshiaki Ogawa, 2020. "Welfare Implications of Bank Capital Requirements under Dynamic Default Decisions," IMES Discussion Paper Series 20-E-03, Institute for Monetary and Economic Studies, Bank of Japan.

    More about this item

    Keywords

    Capitalization; FDIC; Markov Chain; Transition matrix; USA banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:30:y:2013:i:c:p:131-140. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.