IDEAS home Printed from https://ideas.repec.org/a/mcb/jmoncb/v27y1995i2p432-56.html
   My bibliography  Save this article

The Relationship between Capital and Earnings in Banking

Author

Listed:
  • Berger, Allen N

Abstract

Contrary to conventional wisdom, bank capital ratios are positively related to returns on equity in the 1980s. Higher capital Granger-caused higher earnings and vice versa for U.S. banks, 1983-89. The surprising positive Granger-causation from capital to earnings occurred primarily through lower interest rates paid on uninsured purchased funds. The data support the hypothesis that expected bankruptcy costs for banks increased substantially in the 1980s, raising optimal capital ratios. The causation from capital to earnings became negative in the early 1990s, when aggregate risk, regulation, and earnings changed, but the findings still support the expected bankruptcy costs hypothesis. Copyright 1995 by Ohio State University Press.

Suggested Citation

  • Berger, Allen N, 1995. "The Relationship between Capital and Earnings in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 432-456, May.
  • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:2:p:432-56
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0022-2879%28199505%2927%3A2%3C432%3ATRBCAE%3E2.0.CO%3B2-4&origin=bc
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

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

    Other versions of this item:

    More about this item

    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:mcb:jmoncb:v:27:y:1995:i:2:p:432-56. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.