- Banks increase risk-based capital ratios in times of great uncertainty.
- The increase comes largely from well capitalized banks and by reducing loans.
From the Abstract:
"[We] find that banks in the disaster areas increase their risk-based capital ratios after the hurricane. This finding shows that banks act precautious by themselves irrespective of regulatory requirements. However, when we examine low-capitalized and high-capitalized banks separately, we find that results are driven by high-capitalized banks. In addition, high-capitalized banks increase their risk-based capital ratios by decreasing loans and not by increasing capital."
Lambert, Claudia, Noth, Felix and Schuewer, Ulrich, How Do Banks React to Increased Asset Risks? Evidence from Hurricane Katrina (March 1, 2012). 29th International Conference of the French Finance Association (AFFI) 2012. Available at SSRN: http://ssrn.com/abstract=2083732