Bank Capital: Lessons From the Financial Crisis
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Summary:
Using a multi-country panel of banks, we study whether better capitalized banks experienced higher stock returns during the financial crisis. We differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the tangible equity ratio. We find several results: (i) before the crisis, differences in capital did not have much impact on stock returns; (ii) during the crisis, a stronger capital position was associated with better stock market performance, most markedly for larger banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) higher quality forms of capital, such as Tier 1 capital and tangible common equity, were more relevant.
Series:
Working Paper No. 2010/286
Subject:
Banking Capital adequacy requirements Financial crises Financial institutions Financial markets Financial regulation and supervision Loan loss provisions Stock markets Stocks
English
Publication Date:
December 1, 2010
ISBN/ISSN:
9781455210930/1018-5941
Stock No:
WPIEA2010286
Pages:
35
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