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Journal Article
The persistence of bank profits: what the stock market implies
This paper examines the speed with which abnormal economic profits vanish in the U.S. banking industry. A model is developed to infer expected speeds of profit adjustment from stock market and financial accounting data, deriving the rate of adjustment that is most consistent with observed cross-sectional relationships between bank stock prices and profitability. The model allows for the possibility that reported accounting income may be a biased and noisy signal of economic profit. Estimation is performed using generalized nonlinear least squares on a pooled series of cross sections. The ...
Journal Article
Small banks, small loans, small business
Journal Article
Early warning systems
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
Why banking isn't declining
Journal Article
Changing the $100,000 deposit insurance limit
Journal Article
Can the stock market tell bank supervisors anything they don't already know?
This article provides evidence consistent with recent policy proposals calling for a greater role for market forces in promoting a safe and sound financial system. The authors' empirical results indicate a measure of expected default probability distilled from equity prices helps predict the financial condition of individual banking organizations, as reflected in their supervisory ratings. Moreover, the stock market data have predictive power over and above the information in the quarterly financial statements available to supervisors between inspections. These findings suggest financial ...
Journal Article
Market risk and bank capital: part 1
Journal Article
Risk-adjusted deposit insurance premiums
Conference Paper
Beyond traditional credit risk: capital standards for market risks