Abstract

http://ssrn.com/abstract=1751399
 
 

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Bank Capital: Lessons from the Financial Crisis


Asli Demirgüç-Kunt


World Bank - Financial and Private Sector Development; World Bank

Enrica Detragiache


International Monetary Fund (IMF) - European Department

Ouarda Merrouche


World Bank

December 2010

IMF Working Paper No. 10/286

Abstract:     
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.

Number of Pages in PDF File: 36

Keywords: Bank regulations, Banks, Capital, Cross country analysis, Economic models, Financial crisis, Global Financial Crisis 2008-2009, Risk management, Stock markets

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Date posted: February 1, 2011  

Suggested Citation

Demirgüç-Kunt, Asli and Detragiache, Enrica and Merrouche, Ouarda, Bank Capital: Lessons from the Financial Crisis (December 2010). IMF Working Papers, Vol. , pp. 1-35, 2010. Available at SSRN: http://ssrn.com/abstract=1751399

Contact Information

Asli Demirgüç-Kunt
World Bank - Financial and Private Sector Development ( email )
United States
202-473-7479 (Phone)
202-522-1155 (Fax)
HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/
World Bank ( email )
1818 H Street, NW
Washington, DC 20433
United States
Enrica Detragiache
International Monetary Fund (IMF) - European Department ( email )
700 19th Street NW
Washington, DC 20431
United States
Ouarda Merrouche
World Bank ( email )
1818 H Street, NW
Washington, DC 20433
United States
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