How Do Capital Ratios Affect Bank Risk-Taking: New Evidence From the United States | Zendy

Faisal Abbas | Zendy; Omar Masood | Zendy; Shoaib Ali | Zendy; Sohail Rizwan | Zendy

AI Assistant Blog Pricing

Home ZAIA Blog

Open Access

How Do Capital Ratios Affect Bank Risk-Taking: New Evidence From the United States

Author(s) -

Faisal Abbas,

Omar Masood,

Shoaib Ali,

Sohail Rizwan

Publication year - 2021

Publication title -

sage open

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.357

H-Index - 32

ISSN - 2158-2440

DOI - 10.1177/2158244020979678

Subject(s) - loan , proxy (statistics) , non performing loan , business , actuarial science , moral hazard , capital (architecture) , economics , finance , incentive , statistics , mathematics , archaeology , microeconomics , history

This study aims to examine the impact of different capital ratios on Non-Performing loans, Loan Loss Reserves, and Risk-Weighted Assets by studying large commercial banks of the United States. The study employed a two-step system generalized method of movement (GMM) approach by collecting the data over the period ranging from 2002 to 2018. The study finds that using Non-Performing loans and Loan Loss Reserves as a proxy for risk, results support moral hazard hypothesis theory, whereas the results support regulatory hypothesis theory when Risk-Weighted Assets is used as a proxy for risk. The results confirm that the influence of high-quality capital on Non-Performing loans, Loan Loss Reserves, and Risk-Weighted Assets is substantial. The distinctive signs of Non-Performing loans, Loan Loss Reserves, and Risk-Weighted Assets have indications for policymakers. The results are intimate for formulating new guidelines regarding risk mitigation to recognize Non-Performing loans and Loan Loss Reserves and the Risk-Weighted Assets for better results. JEL Classification: G21, G28, G29

The content you want is available to Zendy users.

Already have an account? Click here to sign in.

Having issues? You can contact us here

Accelerating Research