The relationship between risk and capital in commercial banks

doi:10.1016/0378-4266(92)90024-T

Journal of Banking & Finance

Volume 16, Issue 2, April 1992, Pages 439-457

https://doi.org/10.1016/0378-4266(92)90024-T Get rights and content

Abstract

This study investigates the relationship between changes in risk and capital in a large sample of banks. A positive association between changes in risk and capital is found. The fact that this finding holds in banks with capital ratios in excess of regulatory minimum levels supports the conclusion that, for most banks, bank owners' and/or managers' private incentives work to limit total risk exposure. Results for banks which were undercapitalized by regulatory standards indicate that regulation was at least partially effective during the period covered. Overall, the findings support a conclusion that changes in bank capital over the period studied have been ‘risk-based’.

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^☆: The authors are grateful to the Herbert V. Prochnow Education Foundation, Inc. and Utah State University for support. The views presented do not necessarily represent those of the Foundation. We would like to acknowledge helpful comments from Ken Robinson, M. Carey Collins, Ray DeGennaro, John Trimble, and participants of the University of Tennessee Finance Department workshop. We are especially indebted to anonymous referees of this journal for many helpful suggestions.

^∗: tel. (615) 974-3216.

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The relationship between risk and capital in commercial banks☆

Abstract

Journal of Banking and Finance

Journal of Monetary Economics

Journal of Banking and Finance

Journal of Banking and Finance

Journal of Banking and Finance

Journal of Banking and Finance

Journal of Accounting and Economics

Financial reporting, supplemental disclosures, and bank share prices

Journal of Accounting Research

Perspectives on safe & sound banking

An approach to the regulation of bank holding companies

Journal of Business

Federal deposit insurance, regulatory policy, and optimal bank capital

Journal of Finance

Capital comes to the fore, Issues in Bank Regulation

Banking theory, deposit insurance and bank regulation

Journal of Business

Banks, bankruptcy and public regulation

Journal of Banking and Finance

Capital maintenance: Supplemental adjusted capital measure

Final risk-based capital guidelines