Capital and liquidity ratios and financial distress. Evidence from the European banking industry

Laura Chiaramonte, Barbara Casu

Risultato della ricerca: Contributo in rivistaArticolo in rivistapeer review

34 Citazioni (Scopus)

Abstract

Using a large bank-level dataset, we test the relevance of both structural liquidity and capital ratios, as defined in Basel III, on banks' probability of failure. To include all relevant episodes of bank failure and distress (F&D) occurring in the EU-28 member states over the past decade, we develop a broad indicator that includes information not only on bank- ruptcies, liquidations, under receivership and dissolved banks, but also accounts for state interventions, mergers in distress and EBA stress test results. Estimates from several ver- sions of the logistic probability model indicate that the likelihood of failure and distress decreases with increased liquidity holdings, while capital ratios are significant only for large banks. Our results provide support for Basel III's initiatives on structural liquidity and for the increased regulatory focus on large and systemically important banks.
Lingua originaleEnglish
pagine (da-a)138-161
Numero di pagine24
RivistaTHE BRITISH ACCOUNTING REVIEW
Volume49
DOI
Stato di pubblicazionePubblicato - 2017

Keywords

  • bank capital
  • structural liquidity

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