Abstract
Risk weighted assets are an important element of risk-based capital ratios. Indeed, banks can increase their capital adequacy ratios in two ways: (1) by increasing the amount of regulatory capital held, which boosts the numerator of the ratio, or (2) by decreasing risk-weighted assets, which is the denominator of the regulatory ratio. We study how investors account for the riskiness of banks’ risk-weighted assets (RWA) by examining the determinants of stock returns and market measures of risk. We find that banks with lower RWA performed better during the US and European crises. This relationship is weaker in Europe where banks can use Basel II internal risk models. RWA do not, in general, predict market measures of risk although there is evidence of a positive relationship before the US crisis which becomes negative afterwards.
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© 2013 Springer-Verlag London
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Xiao, W., Huang, Y. (2013). Research on Effect of Banks Risk Weighted Assets. In: Du, W. (eds) Informatics and Management Science I. Lecture Notes in Electrical Engineering, vol 204. Springer, London. https://doi.org/10.1007/978-1-4471-4802-9_54
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DOI: https://doi.org/10.1007/978-1-4471-4802-9_54
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