US banks' capitalization speed‐of‐adjustment: a microeconometric approach

Konstantinos Drakos

Journal of Financial Economic Policy, 2012, vol. 4, issue 3, 270-286

Abstract: Purpose - The purpose of this paper is to investigate whether there are any differences in the capitalization speed‐of‐adjustment across regulatory capitalization buckets of commercial banks in the USA, for the period 2002‐2009. Design/methodology/approach - The Federal Deposit Insurance Corporation (FDIC) monitors banks' capital ratio using the bucketing approach. Thus, this discrete and ordered variable is modeled in the context of a partial adjustment specification, controlling for initial conditions and cross‐sectional heterogeneity. Parameters are estimated with the generalized dynamic random effects ordered probit technique that is flexible enough to allow for differential effects of covariates across capitalization categories. Findings - The main result is that the speed of adjustment is monotonically increasing for banks belonging in lower capitalization buckets, after controlling for bank‐specific capitalization determinants. In addition, substantial differential impacts of capitalization drivers across regulatory buckets are uncovered. Practical implications - This an important finding both for regulators and market participants since it sheds light on a very crucial aspect of banks' behaviour. Originality/value - This is the first paper that adopts the FDIC bucketing in the actual modelling. In addition, it uses the generalized dynamic random effects ordered probit technique in order to explore potential differential impact of capital ratio determinants across buckets.

Keywords: United States of America; Commercial banks; Capitalization; Federal Deposit Insurance Corporation; Speed‐of‐Adjustment (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:v:4:y:2012:i:3:p:270-286

DOI: 10.1108/17576381211245980

Access Statistics for this article

Journal of Financial Economic Policy is currently edited by Prof Franklin Mixon

More articles in Journal of Financial Economic Policy from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().