Wealth effects of bank holding company securities issuance and loan growth under the risk-based capital requirements

This paper tests a two-part hypothesis: first, that during the period between publication of the risk-based capital requirements in early 1989 and the end of 1992, bank holding companies (BHCs) faced a statistically significant decrease in stock returns if they issued new common stock; second, that this discouraged new common stock issuance and therefore, in effect, forced BHCs with Tier 1 and/or leverage capital-to-assets ratios below the regulatory minima to decrease loans outstanding more than did BHCs deficient only in their total capital ratios. Empirical evidence supporting both parts of the hypothesis is presented.