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Title:How do banks adjust their capital ratios? Evidence from Germany PDF Logo
Authors:Memmel, Christoph
Raupach, Peter
Issue Date:2007
Series/Report no.:Discussion Paper, Series 2: Banking and Financial Supervision 2007,06
Abstract:We analyze the dynamics of banks' regulatory capital ratios. Using monthly data of regulatory capital ratios for a subset of large German banks, we estimate the target level and the adjustment speed of the capital ratio for each bank separately. We find evidence that, first, there exists a target level for a substantial percentage of banks; second, that private banks and banks with liquid assets are more likely to adjust their capital ratio tightly; and third, that banks compensate for low target capital ratios with low asset volatilities and high adjustment speeds. Fourth, banks with a target capital ratio seem to use an internal lower limit for their current ratios that is just above the regulatory minimum of 8%.
Subjects:Regulatory bank capital
target capital ratio
partial adjustment
Ornstein-Uhlenbeck process
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank

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