by Timothy H. Hannan and Steven J. Pilloff, Vienna, 2005
This study presents two tests of the hypothesis that adoption of an internal ratings-based approach to determining minimum capital requirements, proposed as part of the Basel II capital accord, would cause adopting banking organizations to increase their acquisition activity. The study employs U.S. data and focuses on the advanced internal ratings-based approach, as proposed for banking organizations in the United States. The first test estimates the relationship between excess regulatory capital and subsequent merger activity, including organization and time fixed effects, while the second test employs a “difference in difference” analysis of the change in merger activity that occurred the last time U.S. regulatory capital standards were changed. Estimated coefficients and observed differences have signs consistent with the hypothesis, but results are either statistically insignificant or imply differences that are small in magnitude.
Samples, Data, and Key Variables
Summary and Conclusion
Keywords:Basel II, Capital, Mergers
JEL Codes:G21, G28, G32, G34
Authors:Timothy H. Hannan and Steven J. Pilloff