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Bank Capital Buffer and Risk Adjustment Decisions

Terhi Jokipii and Alistair Milne ()

No 2009-09, Working Papers from Swiss National Bank

Abstract: Building an unbalanced panel of United States (US) bank holding company (BHC) and commercial bank balance sheet data from 1986 to 2006, we examine the relationship between short-term capital buffer and portfolio risk adjustments. Our estimations indicate that the relationship over the sample period is a positive two-way relationship. Moreover, we show that the management of such adjustments is dependent on the degree of bank capitalization. Further investigation through time-varying analysis reveals a cyclical pattern in the uncovered relationship: negative after the 1991/1992 crisis, and positive before 1991 and after 1997.

Keywords: Bank capital; Portfolio Risk; Regulation (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2009
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