Capital Bu¤er and Risk Adjustments in BHCs

This paper makes use of a panel of United States (US) bank hold-ing company (BHC) and commercial bank balance sheet data in order to examine the relationship between capital bu¤er and portfolio risk adjustments since the introduction of Basel I. Esti-mating a set of limited informationas well as full information simultaneous equations, we \u85nd that for highly capitalized banks, adjustments in capital and risk are negatively correlated. The time-varying nature of the relationship in adjustments is then investigated, and found to change signi\u85cantly around 1993.