Regulatory Change and Capital Adjustment of Financial Institutions

41 Pages Posted: 6 Jan 2010 Last revised: 16 Jan 2012

See all articles by John Goddard

John Goddard

University of Wales System - Bangor University

Donal G. McKillop

Queen's University Management School

John O. S. Wilson

University of St. Andrews

Date Written: January 9, 2012

Abstract

We investigate the determinants of US credit union capital-to-assets ratios, before and after the implementation of the current capital adequacy regulatory framework in 2000.Capitalization varies pro-cyclically, and credit unions classified as adequately capitalized or below followed a faster adjustment path than well capitalized credit unions. Credit unions managed their capital more actively following the change in regulation. During the recent financial crisis, large credit unions experienced a smaller reduction in capitalization, on average, than small credit unions. The z-score risk measure was a more reliable predictor of survival or non-survival during the crisis than several other financial-health indicators.

Keywords: Credit unions, Banking, Capital ratios, Pro-cyclical, Prompt Corrective Action, Regulation

JEL Classification: G21, G18, G28

Suggested Citation

Goddard, John and McKillop, Donal G. and Wilson, John O. S., Regulatory Change and Capital Adjustment of Financial Institutions (January 9, 2012). Available at SSRN: https://ssrn.com/abstract=1531570 or http://dx.doi.org/10.2139/ssrn.1531570

John Goddard

University of Wales System - Bangor University ( email )

Bangor, Gwynedd, Wales LL57 2DG
United Kingdom

Donal G. McKillop

Queen's University Management School ( email )

25 University Square
Belfast, Northern Ireland BT7 1NN
Northern Ireland

John O. S. Wilson (Contact Author)

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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