Regulation and the Determination of Bank Capital Changes: A Note

Authors

  • J. KIMBALL DIETRICH,

  • CHRISTOPHER JAMES

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    • University of Southern California and the University of Oregon, respectively. The authors gratefully acknowledge the constructive comments of an anonymous referee and the editorial guidance of Michael Brennan.

ABSTRACT

The effectiveness of bank capital adequacy requirements is examined in this paper. Using empirical tests similar to those employed by Peltzman and Mingo, no significant relationship is found between changes in bank capital and the capital standards imposed by regulators. The findings conflict with those of previous studies. The conflict in findings, it is argued, results from the failure of previous studies to account for the effect of binding deposit rate ceilings.

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