How should we measure bank capital adequacy for triggering Prompt Corrective Action? A (simple) proposal

Chernykh, Lucy; Cole, Rebel A.

doi:10.1016/j.jfs.2015.08.003

Cited by 37 publications

(35 citation statements)

References 40 publications

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“…The effect of bank capital on bank-lending has been widely debated since the 1988 Basel accord (Bernanke and Lown, 1991;Berger and Udell, 1994;Rosengren, 1997, 2000;Kishan and Opiela, 2000;Gambacorta and Mistrulli, 2004;Berrospide and Edge, 2010;Beatty and Liao, 2011;Carlson et al, 2013;Bridges et al, 2014;Labonne and Lame 2014;Olszak et al, 2014;Kosak et al, 2015). Although some previous studies confirm that regulatory capital ratios behave similarly to equity ratio (Craig et al, 2006), Gambacorta and Marques-Ibanez (2011) and Chernykh and Cole (2015) show that regulatory capital ratios may be more accurate in measuring solvency. In this paper, four capital ratios are considered based on Basel regulatory standards (BIS, 2011(BIS, , 2014a.…”

Section: Bank-specific Explanatory Variablesmentioning

confidence: 88%

Basel III and bank-lending: Evidence from the United States and Europe

Naceur

Marton

Roulet

2018

Journal of Financial Stability

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Using data on commercial banks in the United States and Europe, this paper analyses the impact of the new Basel III capital and liquidity regulation on bank-lending following the 2008 financial crisis. We find that U.S. banks reinforce their risk absorption capacities when expanding their credit activities. Capital ratios have significant, negative impacts on bankretail-and-other-lending-growth for large European banks in the context of deleveraging and the "credit crunch" in Europe over the post-2008 financial crisis period. Additionally, liquidity indicators have positive but perverse effects on bank-lending-growth, which supports the need to consider heterogeneous banks' characteristics and behaviors when implementing new regulatory policies. JEL Classification Numbers: G21, G28

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Section: Bank-specific Explanatory Variablesmentioning

confidence: 88%

Basel III and bank-lending: Evidence from the United States and Europe

Naceur

Marton

Roulet

2018

Journal of Financial Stability

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“…A more recent addition to the literature, Chernykh and Cole (2015), uses the Nonperforming Assets Coverage Ratio (NPACR), which is created by adding capital (represented by shareholders' equity) and loan loss reserves, subtracting nonperforming assets, and then normalizing the sum by total assets. 32 NPACR is negative and significant in both of our failure and loss models.…”

Section: Additional Analysismentioning

confidence: 99%

“…In the failure model, Multifamily is positively and significantly related to failure, while Farmland is negatively and significantly associated. 32 Chernykh and Cole (2015).…”

Section: Fhlb Advance Measures the Sum Of Federal Home Loan Bank Advamentioning

confidence: 99%

Comparison of Small Bank Failures and FDIC Losses in the 1986–92 and 2007–13 Banking Crises

Balla¹,

Mazur²,

Prescott

et al. 2017

Working Paper (Federal Reserve Bank of Cleveland)

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“…This has led to the call by experts for the revocation of regulatory RBC in the United States (Hogan, 2015). Further empirical evidence showed that 'non-performing assets coverage ratio' (NPACR) -a non-risk-based capital (NBC) adequacy measure -outperformed RBC ratio in the ability to detect problem banks and predict bank failure (Chernykh & Cole, 2015). Although both RBC and NBC ratios are strongly informative of the financial condition of a bank, RBC is seen as the most effective predictor of banks' financial condition over long-time horizons (Estrella, Park, and Peristiani, 2000).…”

Section: Introductionmentioning

confidence: 99%

Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria

Salami

Uthman

2018

Acta Universitatis Sapientiae, Economics and Business

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This study examines the impact of bank capital and operating efficiency on the Nigerian deposit money bank financial performance with a view to resolving risk-based and non-risk-based capitals’ dichotomy existing in the bank literature. Using bank-specific data obtained from the annual reports and accounts of 15 banks listed on the Nigerian Stock Exchange between 2012 and 2015, the panel data regression analyses revealed the superiority of standard capital ratio of equity-to-total-assets, a non-risk-based capital, over other measures. While all measures, both risk-based and non-risk-based capitals, showed significantly positive effects on bank performance as measured by return-on-asset, mixed results were obtained from other indicators: return-on-equity and net-interest-margin. Overall, only equity-to-total-assets influenced all adopted performance indicators positively. It was also found that operating efficiency measured by cost-to-income ratio had negative impact on bank performance, but on the average it appeared too high. Thus, incorporating the standard capital ratio of equity-to-total assets into regulatory regime by the banks’ regulator is recommended to ensure its relevance is not overshadowed.

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How should we measure bank capital adequacy for triggering Prompt Corrective Action? A (simple) proposal

Cited by 37 publications

References 40 publications

Basel III and bank-lending: Evidence from the United States and Europe

Basel III and bank-lending: Evidence from the United States and Europe

Comparison of Small Bank Failures and FDIC Losses in the 1986–92 and 2007–13 Banking Crises

Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria

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