Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212052 
Year of Publication: 
2006
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 27/2006
Publisher: 
Bank of Finland, Helsinki
Abstract: 
The solvency standards implicit in bank capital levels, as reported eg in Jackson et al (2002), are much higher than those required for top ratings, if standard single period economic capital models are taken seriously.We explain this excess capital puzzle by forward looking rating targeting behaviour by banks, which aims at maintaining rating above a minimum target in future periods.We calibrate to data on actual bank capital the confidence level used by the median US AA rated bank to maintain at least a single A rating.The calibrated confidence level is in line with the historical probability of an AA rated bank to be downgraded below A.
Subjects: 
bank capital
credit rating
value-at-risk
economic capital
capital structure
JEL: 
G21
G32
Persistent Identifier of the first edition: 
ISBN: 
978-952-463-332-2
Document Type: 
Working Paper

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