The Bank Capital Decision: A Time Series—Cross Section Analysis

摘要: This paper seeks to explain the dramatic decline in capital asset ratios U.S. commercial banks during last two decades. It is hypothesized that rise nominal interest rates this period might have contributed substantially fall ratios. Time series-cross section estimation supports hypothesis regarding rate. BANK CAPITAL IS THE sum of equity plus debt subordinated deposits. Capital provides a cushion protects bank from insolvency when value its assets falls; can meet obligations depositors as long losses on portfolio do not exceed capital. The ratio total has fallen dramatically decades, dropping 11.7 percent 1961 5.7 1978, lowest level since World War IJJ1 Figure 1 shows noncash assets. These figures suggest Federal Deposit Insurance Corporation (FDIC) and uninsured are being exposed increased probabilities insolvencies. However, relatively little empirical research been devoted determinants decision. Further, existing work (see for example, Peltzman [24], Mingo [20], or Mayne [17, 18]) uses only cross-sectional data therefore does necessarily capital-to-asset over time. Previous also focused book values rather than market equity, although provide better estimates protection afforded by practice be partly justified attention paid regulators. increasing use qualitative factors well regulation indicates regulators aware deficiencies values. Many so-called considerations precisely distinguish [6, pp. 78-80]. Finally, difficulties arise proper measure studies cited above treat symmetrically. Both * Assistant Professor Finance/Economics, Boston University School Management. was originally written part doctoral dissertation at M.I.T. Helpful suggestions Robert McDonald, Richard Schmalensee, Larry Summers, Edward J. Kane gratefully acknowledged. l statistics based methods used construct series described Appendix. Capital-asset question, severely.