Bank Capital and Risk: Cautionary or Precautionary?
Anna Kovner and
James Vickery ()
No 20150202, Liberty Street Economics from Federal Reserve Bank of New York
Do riskier banks have more capital? Banking companies with more equity capital are better protected against failure, all else equal, because they can absorb more losses before becoming insolvent. As a result, banks with riskier income and assets would hopefully choose to fund themselves with relatively more equity and less debt, giving them a larger equity cushion against potential losses. In this post, we use a top-down stress test model of the U.S. banking system?the Capital and Loss Assessment under Stress Scenarios (CLASS) model?to assess whether banks that are forecast to lose capital in a severe downturn do indeed have more capital, and how the relationship between capital and risk has evolved over time.
Keywords: Bank Capital; Stress Testing; Financial Stability (search for similar items in EconPapers)
JEL-codes: G2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://libertystreeteconomics.newyorkfed.org/2015 ... r-precautionary.html (text/html)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fednls:87007
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Liberty Street Economics from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by ().