CAPITAL RATIOS AS PREDICTORS OF BANK FAILURE.

Federal Reserve Bank of New York Economic PolicyReview | July 1, 2000| | Copyright

* The current regulatory framework for determining bank capital adequacy is under review by the Basel Committee on Banking Supervision.

* An empirical analysis of the relationships between different capital ratios and bank failure suggests that two simple ratios--the leverage ratio and the ratio of capital to gross revenue--may merit a role in the revised framework.

* The leverage ratio and the gross revenue ratio predict bank failure about as well as more complex risk-weighted ratios over one- or two-year horizons. Risk-weighted ratios tend to perform ...

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