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U.S. prompt corrective action and bank risk

ap Gwilym, Rhys, Kanas, Angelos, Molyneux, Philip (2013) U.S. prompt corrective action and bank risk. Journal of International Financial Markets, Institutions and Money, 26 (1). pp. 239-257. ISSN 1042-4431. (doi:10.1016/j.intfin.2013.06.002) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)
Official URL
http://dx.doi.org/10.1016/j.intfin.2013.06.002

Abstract

This paper examines whether Prompt Corrective Action (PCA) was effective in reducing default and credit risk in U.S. banking. We employ parametric, non-parametric, nonlinear and switching cointegration tests and a general-to-specific testing procedure to examine if PCA-defined bank ratios and risk measures share common stochastic trends. We find strong evidence of switching cointegration between PCA-defined ratios and default risk. This occurs in 1993 and coincides with the adoption of PCA legislation. We conclude that PCA is effective in reducing default risk. In contrast, there is no clear evidence of cointegration between the PCA-defined ratios and credit risk. Our findings show that tougher capital standards mitigate default risk and therefore provide indirect support for current on-going capital regulation. © 2013 Elsevier B.V.

Item Type: Article
DOI/Identification number: 10.1016/j.intfin.2013.06.002
Additional information: Unmapped bibliographic data: AD - Business School, Bangor University, Bangor LL57 2DG, United Kingdom [Field not mapped to EPrints] AD - Department of Economics, University of Piraeus, 18534 Piraeus, Greece [Field not mapped to EPrints] JA - J. Int. Financ. Mark. Inst. Money [Field not mapped to EPrints]
Uncontrolled keywords: Cointegration, Credit risk, Default risk, Prompt corrective action, Switching cointegration
Subjects: H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School > Accounting and Finance
Depositing User: Tracey Pemble
Date Deposited: 22 May 2014 11:02 UTC
Last Modified: 29 May 2019 12:36 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/41123 (The current URI for this page, for reference purposes)
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