Loan, Security, and Dividend Choices by Individual (Unconsolidated) Public and Private Commercial Banks
Posted: 26 Apr 2001
Using call report data, we consider whether the discretionary portion of loan loss provisions, loan charge-offs, securities gains and losses, and dividends are influenced by the bank's level of capital, earnings, and taxes. We studied more than 11,000 banks. We find that banks below a capital adequacy threshold often make discretionary choices that reduce earnings and capital. Banks above the threshold exhibit different discretionary outcomes, with evidence of income smoothing and tax-advantaged actions.
JEL Classification: M41, M43, G21, G38
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