Source of Publication
Journal of Applied Economics
Using GMM framework on the data of the US commercial banks spanning over 2002 to 2018, this study shows that banks adjust their regulatory capital ratios faster than traditional capital ratios. Our results show that the speed of adjustment of regulatory capital ratios and traditional capital ratios increases in bank capital adequacy and bank liquidity, respectively. We also find that the speed of adjustment of regulatory capital ratios of too-big-to-fail banks is lower than well-capitalized, adequately-capitalized, nationally-chartered, and state-chartered banks. In addition, the speed of adjustment of regulatory capital ratios of commercial banks is higher in the post-crisis period than the pre-crisis era. Although scholars suggest that adjustment of capital ratios through rebalancing liabilities is more beneficial to the banks, our findings show that banks also use their assets side of balance sheet to rebalance their capital ratios.
Informa UK Limited
bank charters, Capital ratio, regulatory ratio, speed of capital adjustment, tier-I ratio
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Abbas, Faisal; Ali, Shoaib; and Rubbaniy, Ghulame, "Economics of capital adjustment in the US commercial banks: empirical analysis" (2021). All Works. 4098.
Indexed in Scopus
Open Access Type
Gold: This publication is openly available in an open access journal/series