Risk and Risk-Based Capital of U.S. Bank Holding Companies
43 Pages Posted: 7 Oct 2015
Date Written: October 6, 2015
This paper analyzes banks’ capital and risk-based capital (RBC) ratios as predictors of risk. Using quarterly data on U.S. bank holding companies (BHCs) from 1997 through 2010, we regress the capital and RBC ratios against six balance-sheet and market-based indicators of risk. Although both the capital and RBC ratios are statistically significant predictors of BHCs’ levels of risk, we find the capital ratio is a statistically significantly better predictor of risk than the RBC ratio. This difference is strongest since the recent financial crisis beginning in 2007.
Keywords: Bank, Capital, Risk-based capital, Risk, Regulation, Federal Reserve
JEL Classification: G21, G28, G32
Suggested Citation: Suggested Citation