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Review of Quantitative Finance and Accounting

, Volume 43, Issue 2, pp 393–404 | Cite as

The impact of prompt corrective action on the default risk of the U.S. commercial banking sector

  • Angelos Kanas
Original Research

Abstract

As the Basel III reforms, which come into effect from 2012, place emphasis on default risk, assessing the impact of Prompt Corrective Action (PCA) on default risk is of practical relevance. We provide strong evidence that both the dynamic and the contemporaneous impact of the PCA-defined tier 1 risk-based capital ratio and the tier 1 leverage ratio on default risk is reduced following PCA’s introduction. We interpret this as evidence that PCA is effective in managing the default risk of the U.S. commercial banking sector.

Keywords

USA Commercial banks PCA Default risk Regimes 

JEL Classification

G21 G28 

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of PiraeusPiraeusGreece

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