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Working Paper
Australian banking risk: evidence from share prices
We use share price data to calculate bank asset volatilities, market capital-asset ratios, and the public-sector depositor protection liability for Australia. The results show that the average capital ratio for the Australian banking sector has risen over the past decade, while the riskiness of bank assets has increased slightly. An examination of the relationship between asset volatility and bank capital implies that riskier banks have tended to maintain higher capital ratios, with a similar positive relationship between the two variables over time at individual banks. We find that the ...
Journal Article
Competitive forces and profit persistence in banking
Journal Article
Changing the $100,000 deposit insurance limit
Working Paper
A simple approach to better deposit insurance pricing
Journal Article
Market risk and bank capital: part 2
Journal Article
Market risk and bank capital: part 1
Journal Article
Explaining differences in farm lending among banks
Do small, rural banks lend to farmers because they are small, or because they are rural? This paper combines a new measure of the extent of agricultural activity in banking markets with an appropriate statistical framework to examine causes of interbank variation in agricultural production loans. The results show that a bank's size and head office location both matter to some extent, but that the size of a bank's branches in agricultural areas is the single most important factor determining agricultural loan levels. Other variables, such as ownership structure and charter type, have no ...
Journal Article
Using credit risk models for regulatory capital: issues and options
The authors describe the issues and options that would be associated with the development of regulatory minimum capital standards for credit risk based on banks' internal risk measurement models. Their goal is to provide a sense of the features that an internal-models (IM) approach to regulatory capital would likely incorporate, and to stimulate discussion among financial institutions, supervisors, and other interested parties about the many practical and conceptual issues involved in structuring a workable IM regulatory capital regime for credit risk. The authors focus on three main areas: ...
Working Paper
The persistence of bank profits: what the stock market implies
This paper examines the speed with which abnormal economic profits (that is, profits greater than or less than required to compensate for the real opportunity cost of capital including risk) vanish in the U.S. banking industry. Positive economic profits arise from random "good luck," or from successful process innovations or product differentiation, and then erode as markets adjust. Negative profits arise from bad luck or strategic failures, but also tend to be corrected over time. A model is developed to infer expected speeds of profit adjustment from stock market and financial accounting ...