The impact of prompt corrective action on the default risk of the U.S. commercial banking sector

Angelos Kanas ()

Review of Quantitative Finance and Accounting, 2014, vol. 43, issue 2, 393-404

Abstract: As the Basel III reforms, which come into effect from 2012, place emphasis on default risk, assessing the impact of Prompt Corrective Action (PCA) on default risk is of practical relevance. We provide strong evidence that both the dynamic and the contemporaneous impact of the PCA-defined tier 1 risk-based capital ratio and the tier 1 leverage ratio on default risk is reduced following PCA’s introduction. We interpret this as evidence that PCA is effective in managing the default risk of the U.S. commercial banking sector. Copyright Springer Science+Business Media New York 2014

Keywords: USA; Commercial banks; PCA; Default risk; Regimes; G21; G28 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11156-013-0378-4

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