RISK-BASED CAPITAL AND DEPOSIT INSURANCE REFORM

This paper analyzes the new risk-based capital (RBC) standards using data on U.S. banks from 1982 to 1989. The association between bank performance (including bankruptcy) and the RBC relative risk weights and compliance with the RBC standards are assessed. These associations suggest that RBC constitutes a significant improvement over the old capital standards, although both standards incorporate useful independent information. The data also indicate that relative to the old standards, the new standards are much more strict on large banks and are more stringent overall. As a result, banks representing more than one-fourth of all bank assets would have failed the new standards as of 1989. © 1991.