Bank Capital : Lessons from the Financial Crisis
Using a multi-country panel of banks, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis. They differentiate among various types of capital ratios: the Basel risk-adjusted ratio; th...
Main Authors: | , , |
---|---|
Format: | Policy Research Working Paper |
Language: | English |
Published: |
2012
|
Subjects: | |
Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101110113157 http://hdl.handle.net/10986/3955 |
Summary: | Using a multi-country panel of banks,
the authors study whether better capitalized banks fared
better in terms of stock returns during the financial
crisis. They differentiate among various types of capital
ratios: the Basel risk-adjusted ratio; the leverage ratio;
the Tier I and Tier II ratios; and the common equity ratio.
They find several results: (i) before the crisis,
differences in capital did not affect subsequent stock
returns; (ii) during the crisis, higher capital resulted in
better stock performance, most markedly for larger banks and
less well-capitalized 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) there is evidence that higher quality
forms of capital, such as Tier 1 capital, were more
relevant. They also examine the relationship between bank
capitalization and credit default swap (CDS) spreads. |
---|