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The impact of prompt corrective action on the default risk of the U.S. commercial banking sector

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  • Angelos Kanas

Abstract

As the Basel III reforms, which come into effect from 2012, place emphasis on default risk, assessing the impact of Prompt Corrective Action (PCA) on default risk is of practical relevance. We provide strong evidence that both the dynamic and the contemporaneous impact of the PCA-defined tier 1 risk-based capital ratio and the tier 1 leverage ratio on default risk is reduced following PCA’s introduction. We interpret this as evidence that PCA is effective in managing the default risk of the U.S. commercial banking sector. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Angelos Kanas, 2014. "The impact of prompt corrective action on the default risk of the U.S. commercial banking sector," Review of Quantitative Finance and Accounting, Springer, vol. 43(2), pages 393-404, August.
  • Handle: RePEc:kap:rqfnac:v:43:y:2014:i:2:p:393-404
    DOI: 10.1007/s11156-013-0378-4
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    More about this item

    Keywords

    USA; Commercial banks; PCA; Default risk; Regimes; G21; G28;
    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

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