Bank Capital: Lessons From the Financial Crisis

Ouarda Merrouche, Enrica Detragiache () and Asli Demirguc-Kunt

No 2010/286, IMF Working Papers from International Monetary Fund

Abstract: Using a multi-country panel of banks, we study whether better capitalized banks experienced higher stock returns during the financial crisis. We differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the tangible equity ratio. We find several results: (i) before the crisis, differences in capital did not have much impact on stock returns; (ii) during the crisis, a stronger capital position was associated with better stock market performance, most markedly for larger banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) higher quality forms of capital, such as Tier 1 capital and tangible common equity, were more relevant.

Keywords: WP; bank capital; large bank; capitalized bank; charter value; bank characteristic; bank risk-taking; leverage ratio; financial crisis; Basel capital accord; preference shares; stock return; Stocks; Capital adequacy requirements; Stock markets; Loan loss provisions; Global (search for similar items in EconPapers)
Pages: 35
Date: 2010-12-01
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Citations: View citations in EconPapers (48)

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Related works:
Journal Article: Bank Capital: Lessons from the Financial Crisis (2013)
Journal Article: Bank Capital: Lessons from the Financial Crisis (2013)
Working Paper: Bank capital: lessons from the financial crisis (2010)
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