The formation of hidden negative capital in banking : A product mismatch hypothesis

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dc.contributor Bank of Finland Kostrov, Alexander Mamonov, Mikhail 2019-04-04T07:14:29Z 2019-04-04T07:14:29Z 2019
dc.identifier.isbn 978-952-323-268-6
dc.identifier.issn 1456-5889
dc.description.abstract This paper investigates the phenomenon of hidden negative capital (HNC) associated with bank failures and introduces a product mismatch hypothesis to explain the formation of HNC. Given that troubled banks tend to hide negative capital in financial statements from regulators to keep their licenses, we attempt to capture this gambling behavior by evaluating product mismatches reflecting disproportions between the allocation of bank assets and the sources of funding. We manually collect unique data on HNC and test our hypothesis using U.S. and Russian banking statistics for the 2004{2017 period (external validity argument). To manage the sample selection concerns, we apply the Heckman selection approach. Our results clearly indicate that product mismatch matters and works similarly in both U.S. and Russian banking systems. Specifically, an increase in mismatch has two e ects: it leads to a higher probability that a bank's capital is negative and raises the conditional size of the bank's HNC. Further, we demonstrate that the mismatch e ect is heterogeneous with respect to bank size being at least partially consistent with the informational asymmetry view. Our results may facilitate improvements in the prudential regulation of banking activities in other countries that share similar features with either the U.S. or Russian banking systems.
dc.format.extent 43
dc.language.iso ENG
dc.subject Bofit-kokoelma
dc.subject SP
dc.subject RP ST
dc.subject Venäjä
dc.subject Yhdysvallat
dc.subject.other Bank failure
dc.subject.other Hidden negative capital
dc.subject.other Product mismatch
dc.subject.other Misreporting
dc.subject.other Heckman selection model
dc.title The formation of hidden negative capital in banking : A product mismatch hypothesis
dc.type Paper
dc.identifier.urn URN:NBN:fi:bof-201904041130
dc.subject.jel G21
dc.subject.jel G33
dc.subject.jel C34 BOFIT Discussion Papers
dc.series.year 2019
dc.series.number 6/2019
dc.series.sortingnumber 0006 3.4.2019
dc.subject.yso pankit
dc.subject.yso pääoma
dc.subject.yso raportointi
dc.subject.yso informaatio
dc.subject.yso sääntely
dc.contributor.orgunit Institute for Economies in Transition (BOFIT)
dc.type.okm D4

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