Assessing the Impact of Prompt Corrective Action on Bank Capital and Risk

10 Pages Posted: 29 Oct 2007

See all articles by Raj Aggarwal

Raj Aggarwal

University of Akron; Federal Reserve Banks - Federal Reserve Bank of Cleveland; Kent State University; Kent State University Foundation

Kevin T. Jacques

affiliation not provided to SSRN

Date Written: October 1998

Abstract

This paper examines the impact that the Prompt Corrective Action (PCA) standards had on bank portfolios following the passage of FDICIA in 1991. To do this, the simultaneous equations model developed by Shrieves and Dahl (1992), and later modified by Jacques and Nigro (1997) to study the impact of risk-based capital, is used to examine how PCA simultaneously influenced bank capital ratios and portfolio risk levels. Unlike prior studies on this topic, by using a simultaneous equations model, the endogeneity of both capital and portfolio risk is explicitly recognized, and as such, the impact of possible changes in bank capital ratios on risk in a bank's portfolio can be examined.

Keywords: capital regulation

JEL Classification: G2, G3

Suggested Citation

Aggarwal, Raj and Jacques, Kevin T., Assessing the Impact of Prompt Corrective Action on Bank Capital and Risk (October 1998). Economic Policy Review, Vol. 4, No. 3, October 1998, Available at SSRN: https://ssrn.com/abstract=1024839 or http://dx.doi.org/10.2139/ssrn.1024839

Raj Aggarwal (Contact Author)

University of Akron ( email )

Akron, OH 44325-4803
United States

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Kent State University ( email )

College of Business Administration
Kent, OH 44242-0001
United States

Kent State University Foundation ( email )

Akron, OH 44325-4803
United States

Kevin T. Jacques

affiliation not provided to SSRN ( email )

No Address Available

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
514
Abstract Views
2,959
rank
66,402
PlumX Metrics