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“The Crooked Smile of TCR”: Banks’ Solvency and Restructuring Costs in the European Banking Industry
SAGE Open ( IF 2.032 ) Pub Date : 2021-09-13 , DOI: 10.1177/21582440211045962
Małgorzata Iwanicz-Drozdowska 1 , Krzysztof Jackowicz 2 , Maciej Karczmarczyk 3
Affiliation  

In this study, we analyze the probability of bank failure, the expected losses, and the costs of bank restructuring with the application of a lognormal distribution probability function for three categories of European banks, that is, small, medium, and large, over the post-crisis period from 2012 to 2016. Our goal was to determine whether the total capital ratio (TCR) properly reflects banks’ solvency under stress conditions. We identified a phenomenon that one can call the “crooked smile of TCR”. Medium-sized banks with relatively high TCRs performed poorly in stress tests; however, the probability of bank failure increases slightly with the size of the bank, while the TCR decreases. We claim that the focus on capital adequacy measures is not sufficient to achieve the goal of improving banks’ stability and reducing their restructuring costs. Our results are of special importance for medium-sized banks, as these banks are not regularly subjected to publicly available stress tests.



中文翻译:

“TCR的扭曲微笑”:欧洲银行业的银行偿付能力和重组成本

在本研究中,我们应用对数正态分布概率函数对三类欧洲银行,即小型、中型和大型银行,分析银行倒闭概率、预期损失和银行重组成本。从 2012 年到 2016 年的危机后时期。我们的目标是确定总资本比率 (TCR) 是否正确反映了银行在压力条件下的偿付能力。我们发现了一种可以称为“TCR 的扭曲微笑”的现象。TCR较高的中型银行在压力测试中表现不佳;然而,银行倒闭的概率随着银行规模的增加而略有增加,而 TCR 则下降。我们认为,仅关注资本充足率措施不足以实现提高银行稳定性和降低重组成本的目标。

更新日期:2021-09-13
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