The Formation of Hidden Negative Capital in Banking: A Product Mismatch Hypothesis
Type
conference paper
Date Issued
2019-03-31
Author(s)
Abstract
This paper investigates hidden negative capital (HNC) in banks. We develop a simple theoretical model that links HNC to assets charge-offs and shows how product mismatch raises the HNC. In the empirical part, we further test the product mismatch hypothesis using unique data on HNC for U.S. and Russian banks. To address sample selection and endogeneity issues, we apply the Heckman selection approach with instruments. Our results indicate that in both countries product mismatch causes formation of HNC and, conditionally on selection, increases its size. Our results may facilitate improvements in the prudential regulation of banking activities in different countries.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Quantitative Economic Methods
Division(s)
Contact Email Address
alexander.kostrov@unisg.ch
Eprints ID
258153