Capital, Portfolio, and Growth: Bank Behavior Under Risk-Based Capital Guidelines

Posted: 31 Oct 2001

See all articles by Anne Beatty

Anne Beatty

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Anne Gron

Northwestern University - Kellogg School of Management

Abstract

This paper examines banks' capital, portfolio and growth decisions from 1986 to 1995, when risk-based capital guidelines were proposed and implemented. Overall, we observe complementarity between equity financing and risk. We find no systematic differences in pre- and postregulation behavior consistent with banks reacting to risk-based capital standards implementation. We do find significant differences, however, between low-capital banks and other banks. For example, increases in equity generally do not lead to increases in assets unless the bank has low capital. We also find that the impact of regulatory variables, such as the ratio of equity to total assets or the ratio risk-weighted assets to total assets, have the predicted, significant effects for low-capital banks but not necessarily for other banks.

Keywords: Risk-based capital, regulation

Suggested Citation

Beatty, Anne L. and Gron, Anne, Capital, Portfolio, and Growth: Bank Behavior Under Risk-Based Capital Guidelines. Journal of Financial Services Research, Vol. 20, No. 1, September 2001. Available at SSRN: https://ssrn.com/abstract=282579

Anne L. Beatty

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Anne Gron (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Department of Management and Strategy
Evanston, IL 60208
United States
847-491-8687 (Phone)
847-467-1777 (Fax)

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