The effects of declining capitalization on equity acquisition by commercial banks

Article Abstract:

A nonlinear relationship exists between equity acquisition and a bank's level of capitalization, wherein equity acquisition increases as capitalization decreases until a threshold level of undercapitalization is reached, below which equity acquisition drops. Current or prospective shareholders consider it unworthy to invest in banks that fall below the threshold level of capital. This is because they may interpret the banks' failure to acquire external equity as an indicator of potential nonviability.

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Ownership changes and lending at minority banks: a note

Article Abstract:

A survey of 34 banks that have changed status from non-minority to minority ownership and vice versa for the 1983-1991 period shows that lending, and consequently, corporate growth has been slower in the first set of banks. This observation takes into account capitalization and physical site of the bank. It possibly supports the opinion that minority bankers are more conservative in their marketing approach.

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Prompt corrective action and bank efforts to recover from undercapitalization

Article Abstract:

The efforts of banks to recover from positions of undercapitalization are studied. Results show that growth limitations or divided restrictions are ineffective in helping banks to recover from undercapitalization. The effect of profitability on recovery increases with the length of undercapitalization. Equity fusion is also the most common means used by banks to recapitalize.

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