Premium
CAPITAL MANAGEMENT OF DEPOSIT TAKERS: THE IMPACT OF PRUDENTIAL REQUIREMENTS
Author(s) -
GOLDSWORTHY BRENTON,
SCHULZ CARLOS,
SHUETRIM GEOFFREY
Publication year - 1999
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/j.1759-3441.1999.tb01161.x
Subject(s) - ninth , prudential regulation , citation , capital (architecture) , management , political science , economics , history , law , financial crisis , physics , archaeology , acoustics , macroeconomics
This paper explores how the proximity of an institution’s capital-adequacy ratio to the regulatory minimum influences the capital-adequacy ratio observed in the following period. It is shown that banks and credit unions react differently to the prudential constraints.The majority of banks tend to operate with a small buffer of capital above the regulatory minimum; if their capital-adequacy ratio gets too close to the minimum then the bank tends to increase the ratio over the next year, while if the bank finds itself with a ratio well above the minimum then it is inclined to decrease the ratio. In contrast, the capital-adequacy ratio for many credit unions evolves like a random walk. JEL Codes: G21, G28