Bank Capital : Lessons From the Financial Crisis

Author/Editor:

Ouarda Merrouche ; Enrica Detragiache ; Asli Demirgüç-Kunt

Publication Date:

December 1, 2010

Electronic Access:

Download PDF. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Using a multi-country panel of banks, we study whether better capitalized banks experienced higher stock returns during the financial crisis. We differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the tangible equity ratio. We find several results: (i) before the crisis, differences in capital did not have much impact on stock returns; (ii) during the crisis, a stronger capital position was associated with better stock market performance, most markedly for larger banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) higher quality forms of capital, such as Tier 1 capital and tangible common equity, were more relevant.

Series:

Working Paper No. 10/286

Subject:

English

Publication Date:

December 1, 2010

ISBN/ISSN:

9781455210930/1018-5941

Stock No:

WPIEA2010286

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

35

Please address any questions about this title to publications@imf.org