How Does the Stock Market View Bank Regulatory Capital Forbearance Policies?

Lai, Van Son and Ye, X ORCID: 0000-0002-5024-6186 (2020) How Does the Stock Market View Bank Regulatory Capital Forbearance Policies? Journal of Money, Credit and Banking, 52 (8). pp. 1873-1907.

Text
JMCB_forthcoming.pdf - Author Accepted Manuscript
Download (721kB) | Preview

Official URL: https://onlinelibrary.wiley.com/doi/10.1111/jmcb.1...

Abstract

During the subprime crisis, the FDIC has shown, once again, laxity in resolving and closing insolvent institutions. Ronn and Verma (1986) call the tolerance level below which a bank closure is triggered the regulatory policy parameter. We derive a model in which we make this parameter stochastic and bank-specific to infer the stock market view of the regulatory capital forbearance value. For 565 U.S. listed banks during 1990 to 2012, the countercyclical forbearance fraction in capital, most substantial in recessions, could represent 17%, on average, of the market valuation of bank equity and could go as high as 100%.

Item Type:	Article
Additional Information:	Source info: Forthcoming, Journal of Money, Credit and Banking
Uncontrolled Keywords:	Bank regulatory closure rules, policy parameter, bank insolvency, regulatory forbearance, market-based closure rules, financial crises
Depositing User:	Symplectic Admin
Date Deposited:	05 Aug 2019 15:43
Last Modified:	19 Jan 2023 00:36
DOI:	10.1111/jmcb.12692
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3050908