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Journal of Financial Services Research

Erschienen in:

24.01.2020

How Cyclical Is Bank Capital?

verfasst von: Joseph G. Haubrich

Erschienen in: Journal of Financial Services Research | Ausgabe 1/2020

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Abstract

Using annual data since 1834 and quarterly data since 1959, I find a negative correlation between aggregate output and the bank capital ratio, though the numbers are mostly small and insignificant, even when considering leads and lags. Somewhat stronger negative correlations arise with the Tier 1 to risk-weighted assets ratio. The most significant correlations tend to reflect movements in bank assets, rather than capital itself, and although the pattern of aggregate correlations matches that of large banks, small banks show a different pattern, with strongly pro-cyclical capital ratios.

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In this paper, “book capital ratio” or “capital ratio” means the ratio of book equity to total book assets. “Leverage” means the inverse of “capital ratio”; I use leverage when discussing references that speak in terms of leverage rather than capital ratios. “Leverage ratio” is synonymous with “capital ratio.” “Risk-based capital ratio” or “Tier 1 ratio” means the ratio of Tier 1 capital to risk-weighted assets, both as defined by regulators.

The working paper version of this paper includes results using the H-P filter. The results are qualitatively similar.

The Estrella (2004) model, one of the very few that consider leads and lags, predicts a similar pattern, but with the opposite sign.

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Titel: How Cyclical Is Bank Capital?
verfasst von: Joseph G. Haubrich
Publikationsdatum: 24.01.2020
Verlag: Springer US
Erschienen in: Journal of Financial Services Research / Ausgabe 1/2020
Print ISSN: 0920-8550
Elektronische ISSN: 1573-0735
DOI: https://doi.org/10.1007/s10693-019-00331-7