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Review of Quantitative Finance and Accounting

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01.08.2014 | Original Research

The impact of prompt corrective action on the default risk of the U.S. commercial banking sector

verfasst von: Angelos Kanas

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 2/2014

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Abstract

As the Basel III reforms, which come into effect from 2012, place emphasis on default risk, assessing the impact of Prompt Corrective Action (PCA) on default risk is of practical relevance. We provide strong evidence that both the dynamic and the contemporaneous impact of the PCA-defined tier 1 risk-based capital ratio and the tier 1 leverage ratio on default risk is reduced following PCA’s introduction. We interpret this as evidence that PCA is effective in managing the default risk of the U.S. commercial banking sector.

Vorheriger Artikel Investor sentiment and interest rate volatility smile: evidence from Eurodollar options markets

Nächster Artikel The market’s use of supplier earnings information to value customers

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Kaufman (1998, 1999), Passiouras et al. (2006), Yasuda et al. (2004), Palia and Porter (2004), Chen et al. (2011), Kanas (2013), ap Gwilym et al. (2013) and Wilson (2013) provide interesting insights into PCA, and bank risk.

Thanks are due to an anonymous referee for this suggestion.

For similar papers which also adopted the Granger Representation Theorem and specified a VAR in levels, see e.g. MacDonald and Taylor (1991, p. 557), Stock (1995), and Christiano and Ljungovist (1998). Furthermore, Ramaswamy and Sløk (1998, pp 384–385) analytically discuss the VAR specification in the presence of cointegration. They contented that if cointegration exists and the true cointegrating relationships are unknown, as is our case, then an unrestricted VAR in levels should be choosen for the sake of avoiding potential loss of information which takes place when the variables are differenced.

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Titel: The impact of prompt corrective action on the default risk of the U.S. commercial banking sector
verfasst von: Angelos Kanas
Publikationsdatum: 01.08.2014
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 2/2014
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-013-0378-4

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