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Bank Capital Buffer and Risk Adjustment Decisions

Author

Listed:
  • Terhi Jokipii
  • Alistair Milne

Abstract

Building an unbalanced panel of United States (US) bank holding company (BHC) and commercial bank balance sheet data from 1986 to 2006, we examine the relationship between short-term capital buffer and portfolio risk adjustments. Our estimations indicate that the relationship over the sample period is a positive two-way relationship. Moreover, we show that the management of such adjustments is dependent on the degree of bank capitalization. Further investigation through time-varying analysis reveals a cyclical pattern in the uncovered relationship: negative after the 1991/1992 crisis, and positive before 1991 and after 1997.

Suggested Citation

  • Terhi Jokipii & Alistair Milne, 2009. "Bank Capital Buffer and Risk Adjustment Decisions," Working Papers 2009-09, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2009-09
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    File URL: https://www.snb.ch/en/publications/research/working-papers/2009/working_paper_2009_09
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    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

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