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How do large commercial banks adjust capital ratios: empirical evidence from the US?

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  • Faisal Abbas
  • Omar Masood

Abstract

This research explores the balanced panel data to examine the level of capital adjustment for major insured commercial banks over the 2002-2018 period using a two-step GMM estimator. The findings show that the speed of adjustment of the large insured commercial banks is faster than that of non-financial companies. The results contribute to a slower average adjustment pace of a total capital ratio than the total risk-based capital and capital buffer ratios. The adjustment of capital is faster in the post-crisis period than during and before-crises era. The adequately capitalized banks adjust capital ratio faster than well-capitalized banks. In contrast, the under-capitalized banks adjust the total risk-based capital ratio and capital buffer ratio more quickly than that of others. The low liquid banks needed a higher time to restore equilibrium than high liquid banks. The results of this study have economic significance for policy implications and future regulations.

Suggested Citation

  • Faisal Abbas & Omar Masood, 2020. "How do large commercial banks adjust capital ratios: empirical evidence from the US?," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 33(1), pages 1849-1866, January.
    • Handle: RePEc:taf:reroxx:v:33:y:2020:i:1:p:1849-1866
    DOI: 10.1080/1331677X.2020.1763823
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    Cited by:

    1. Albina Kalimashi & Driton Balaj, 2023. "COVID-19 Impact on the Capital Structure of Commercial Banks: Evidence from the Western Balkans," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 76-88.
    2. Faisal Abbas & Shoaib Ali, 2022. "Is Economic Freedom a Moderator of the Relationship Between Bank Capital and Profitability?," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 69(2), pages 273-292, June.

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