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Real Regulatory Capital Management and Dividend Payout: Evidence from Available-for-Sale Securities

Author

Listed:
  • Michele Fabrizi
  • Elisabetta Ipino
  • Michel Magnan
  • Antonio Parbonetti

Abstract

The 2007–2009 financial crisis has re-ignited a long-running debate about the relative merits of historical cost accounting (HCA) or fair value accounting as foundations for prudential oversight, including the calculation of regulatory capital. Available-for-sale securities provide a good setting to further explore this issue. Using a sample of 5,333 firm-year observations representing 721 unique U.S. banks and bank holding companies between 1998 and 2013, we present evidence that regulatory capital based on HCA induces banks to engage in gains trading activities to improve their capital position and pay dividends. We also document that banks experiencing a decrease in regulatory capital and banks with a higher percentage of institutional investors are more prone to engage in gains trading to pay dividends. Finally, our findings reveal that to counterbalance the increased risk, banks change their lending behavior and decrease the riskiness of their trading portfolios. Overall, our results reveal the potential side effects linked to the use of HCA as a foundation to compute regulatory capital and suggest that HCA is not a panacea. La crise financière de 2007-2009 a relancé le débat quant aux avantages et inconvénients comparés de la comptabilité au coût historique (ou amorti) et de la comptabilité à la juste valeur à des fins de réglementation, notamment en ce qui a trait au calcul du capital. Compte tenu de leur comptabilité particulière, les valeurs mobilières disponibles à la vente offrent un contexte intéressant pour l’étude de cette question. À partir des données financières d’un échantillon de 721 banques américaines au cours de la période 1998-2013, nous constatons que le calcul du capital réglementaire basé sur le coût historique amène les banques à effectuer des opérations de cessions de titres disponibles à la vente en vue de réaliser des gains constatés aux résultats, ce qui leur permet d’améliorer leur ratio de capital réglementaire et d’augmenter leurs dividendes. Nous constatons également que les banques souffrant de pressions à la baisse quant à leur ratio de capitalisation et ayant une plus grande proportion d’investisseurs institutionnels dans leur actionnariat ont une plus grande propension à effectuer de telles opérations. Par contre, nous constatons également qu’afin de contrer l’accroissement du risque financier qui en résulte, les banques modifient leur stratégie de prêt et réduisent le niveau de risque de leur portefeuille de négociation. Dans l’ensemble, nos résultats tendent à montrer les effets secondaires découlant de l’utilisation du coût historique en tant que fondement du calcul du capital réglementaire.

Suggested Citation

  • Michele Fabrizi & Elisabetta Ipino & Michel Magnan & Antonio Parbonetti, 2016. "Real Regulatory Capital Management and Dividend Payout: Evidence from Available-for-Sale Securities," CIRANO Working Papers 2016s-57, CIRANO.
    • Handle: RePEc:cir:cirwor:2016s-57
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