How do banks adjust their capital ratios? Evidence from Germany

Arbeitspapier

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%.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 2 ; No. 2007,06

Classification and Topics

• Classification: Wirtschaft ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Regulatory bank capital ; target capital ratio ; partial adjustment ; Ornstein-Uhlenbeck process ; Bank ; Kapitalstruktur ; Eigenkapital ; Bilanzstrukturmanagement ; Schätzung ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Memmel, Christoph ; Raupach, Peter
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/19765
• Last update: 10.03.2025, 11:42 AM CET