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Impact of the COVID-19 event on U.S. banks’ financial soundness

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  • Dunbar, Kwamie

Abstract

This study’s primary innovation is the use of changes in investors’ forward-looking net long hedging choices —an indicator of investors’ risk-based growth expectations—to determine the effect of a change in the Federal Reserve’s capital buffer requirement on banks’ financial soundness. I demonstrate that the net hedging factor data significantly reveals the causal relationships between the financial soundness indicators and the Federal Reserve’s capital buffer requirement. My results also show that an innovation that lowers the banking systems’ capital buffer requirement improves both regulatory capital and Tier-1 capital.

Suggested Citation

  • Dunbar, Kwamie, 2022. "Impact of the COVID-19 event on U.S. banks’ financial soundness," Research in International Business and Finance, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:riibaf:v:59:y:2022:i:c:s0275531921001410
    DOI: 10.1016/j.ribaf.2021.101520
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    More about this item

    Keywords

    COVID-19 pandemic; Regulatory tier-1 capital; Net long hedging factor; Financial soundness;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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