Analyzing Changes in Bank Capital Ratios by Size Decile 2002 to 2012

10.6291/AIAPM.2014.06.08

Elizabeth D. Capener；Dan J. Jordan；Jacques Sanchez；Donald H. Wort

Banks ； Studies ； Capital Ratio ； Efficiency Ratio ； Asset Size

Advances in Investment Analysis and Portfolio Management

6期（2014 / 04 / 01）

199 - 220

英文

This paper examines all of the banks that submitted Call Reports to the FDIC for quarters ended from December, 2002, to June, 2012. We stratified four variables (Tier 1 Risk Based Capital to Total Assets Ratio, Efficiency Ratio, Percentage of Insured Deposits, and Percentage of Non-Accrual and Over-90 Loans plus ORE to Total Assets) by asset size decile, finding that significant differences exist for each of the variables.We find that big banks have lower mean capital ratios than smaller banks and that big banks have increased their mean capital ratios by one-half to one percentage point since December, 2008. We also find that the smallest size decile of banks experienced a deterioration in capital ratios from September, 2007 through June, 2012. In addition, we find that while the percentage of insured deposits jumped significantly for all size groups with the increase in FDIC insurance maximums, the largest size group didn't jump as much as the other groups. We also find that bigger banks (deciles 1 and 2) have lower efficiency ratios than smaller banks. However, there has been a lot of fluctuation in efficiency ratios since the end of 2008 and the ratios appear to still be in a state of flux. Finally, we find that, until June, 2007, all bank deciles had between 0.5% to 1.0% of assets in the ”nonaccrual and over-90 loans plus ORE” category of bad assets. Then, things began to deteriorate rapidly. By December, 2010, bad assets averaged over 3.5% of total assets for the top two deciles, the worst experience of all the size deciles. It is interesting to note that the smallest two deciles, Deciles 9 and 10, weathered the ”housing crisis” much better than the bigger banks.

1. (2003).A cruel sea of capital.The Economist,May
2. Federal Deposit Insurance Corporation. (2010, July). Statement by FDIC chairman bair on senate passage of regulatory reform bill. Retrieved from http://www.fdic.gov/news/news/press/2010/statement_chairman_bair07152010.html
3. Federal Deposit Insurance Corporation. (2010, November). FDIC and financial regulatory reform. Retrieved from http://www.fdic.gov/regulations/reform/role.html
4. Castanais, R.(1983).Bankruptcy risk and optimal capital structure.Journal of Finance,38,1617-1635.
5. Copeland, T. E.,Weston, J. F.(1988).Financial theory and corporate policy.Boston, MA:Addison-Wesley.
6. DiMaggio, P. J.(Ed.),Powellx, W. W.(Ed.)(1991).The new institutionalism in organizational analysis.Chicago, IL:The University of Chicago Press.
7. Harris, M.,Raviv, R.(1991).The theory of capital structure.The Journal of Finance,46,297-355.
8. Jesswein, K. R.(2009).An examination of the "Texas Ratio" as a bank failure model.Academy of Banking Studies Journal,8,63-73.
9. Merton, R. C.(1977).An analytical derivation of the cost of deposit insurance and loan guarantees.Journal of Banking and Finance,1,3-11.
10. Miller, M. H.(1977).Debt and taxes.Journal of Finance,32,261-275.
11. Modigliani, F.,Miller, M.(1961).Dividend policy, growth and the valuation of shares.Journal of Business,34,411-433.
12. Modigliani, F.,Miller, M.(1958).The cost of capital, corporation finance and the theory of investment.The American Economic Review,48,261-297.
13. Myers, S. C.(1984).The capital structure puzzle.The Journal of Finance,39,1984.
14. Sanchez, J. J.(2004).Capital Structure and the risk profiles of commercial banks.San Francisco, CA:Golden Gate University.
15. Stern, G. H.(1998).Government safety nets, banking system stability, and economic development.Journal of Asian Economics,9,21-29.