RDP 199909: Australian Banking Risk: The Stock Market's Assessment and the Relationship Between Capital and Asset Volatility Appendix C: Capital and Risk Relationship
November 1999
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Impact of the 1988 Capital Accord
Bank  Constant  Lags of change in capital  Lags of asset volatility (preAccord) 
Lags of asset volatility (postAccord) 
Significance of testing 


No. of lags 
Sum of coefficients  No. of lags 
Sum of coefficients  No. of lags 
Sum of coefficients  
A  0.001 (0.143) 
1 
0.136 (0.243) 
6 
−0.136 (0.000)^{***} 
1 
0.009 (0.831) 
0.049^{**} 
D  0.004 (0.001)^{***} 
1 
0.134 (0.071)^{*} 
12 
−0.543 (0.080)^{*} 
11 
−0.179 (0.004)^{***} 
0.012^{**} 
E  0.002 (0.281) 
1 
0.025 (0.835) 
5 
0.175 (0.000)^{***} 
1 
−0.089 (0.238) 
0.000^{***} 
G  0.001 (0.169) 
1 
0.157 (0.062)^{*} 
5 
−0.081 (0.000)^{***} 
4 
−0.033 (0.000)^{***} 
0.645 
J  0.001 (0.267) 
1 
0.071 (0.377) 
3 
−0.073 (0.146) 
1 
−0.043 (0.249) 
0.502 
M  0.001 (0.014)^{**} 
1 
0.439 (0.000)^{***} 
1 
−0.269 (0.002)^{***} 
10 
−0.063 (0.005)^{***} 
0.000^{***} 
N  0.005 (0.092)^{*} 
4 
0.159 (0.024)^{**} 
5 
0.198 (0.000)^{**} 
9 
−0.256 (0.010)^{***} 
0.422 
Notes: The numbers in parentheses show the significance level from testing
whether all lagged variables can be excluded from the regression. 
Bank  Constant  Trend 1  Trend 2  Lags of change in capital (preAccord) 
Lags of change in capital (postAccord) 
Lags of volatility  Significance of testing 


No. of lags 
Sum of coefficients  No. of lags 
Sum of coefficients  No. of lags 
Sum of coefficients  
A  −0.001 (0.248) 
0.00008 (0.003)^{***} 
0.00005 (0.001)^{***} 
1 
0.358 (0.046)^{**} 
10 
0.733 (0.020)^{**} 
1 
0.647 (0.000)^{***} 
0.445 
D  0.001 (0.471) 
0.00005 (0.144) 
0.00004 (0.003)^{***} 
1 
0.369 (0.004)^{***} 
2 
0.218 (0.016)^{**} 
1 
0.675 (0.000)^{***} 
0.320 
E  0.008 (0.001)^{***} 
3 
−0.872 (0.000)^{***} 
1 
0.151 (0.041)^{**} 
1 
0.583 (0.000)^{***} 
0.032 

G  0.005 (0.015)^{**} 
1 
0.628 (0.657) 
1 
0.121 (0.579) 
1 
0.682 (0.000)^{***} 
0.728 

J  0.018 (0.000)^{***} 
1 
0.148 (0.131) 
1 
0.165 (0.330) 
4 
0.425 (0.058)^{*} 
0.930 

M  0.001 (0.231) 
1 
0.392 (0.000)^{***} 
5 
1.197 (0.001)^{***} 
6 
0.943 (0.006)^{***} 
0.001 

N  0.002 (0.348) 
1 
−0.242 (0.062)^{*} 
1 
0.138 (0.342) 
6 
0.927 (0.001)^{***} 
0.072 

Notes: The numbers in parentheses show the significance level from
testing whether all lagged variables can be excluded from the regression. 
Bank  PreAccord  PostAccord  

Change in capital (percentage points)  Asset volatility (percentage points)  Change in capital (percentage points)  Asset volatility (percentage points)  
A  −0.144  0.012  0.001  0.117 
D  −0.021  −0.003  0.103  0.022 
E  −0.286  −0.524  −0.003  0.005 
G  0.025  −0.032  −0.113  0.013 
J  −0.018  −0.019  0.010  −0.018 
M  −0.047  0.030  −0.007  0.237 
N  0.132  −0.074  −0.089  0.010 
Note: Each column shows the change in the variable (after six months) as a result of a one standard deviation, one period, shock to the other variable. 
Bank  Constant  Lags of change in capital  Asset volatility (capital increasing) 
Asset volatility (capital decreasing) 
Significance of testing: 


No. of lags 
Sum of coefficients  No. of lags 
Sum of coefficients  No. of lags 
Sum of coefficients  
A  0.000 (0.397)  1  0.365 (0.024)^{**}  1 
−0.041 (0.507)  1 
0.102 (0.087)^{*}  0.093^{*} 
B  0.006 (0.011)^{**}  1 
−0.115 (0.445)  1 
−0.294 (0.047)^{**}  1 
−0.480 (0.022)^{**}  0.165 
C  0.009 (0.000)^{***}  5 
−0.379 (0.000)^{***}  6 
−0.184 (0.008)^{***}  3 
−0.570 (0.007)^{***}  0.099^{*} 
D  0.001 (0.020)^{*}  1 
0.234 (0.031)^{**}  1 
−0.070 (0.255)  1 
−0.030 (0.378)  0.542 
E  0.002 (0.256)  1 
−0.022 (0.869)  5 
−0.136 (0.118)  1 
−0.077 (0.378)  0.321 
G  0.000 (0.663)  1 
0.036 (0.786)  1 
0.112 (0.091)^{*}  1 
0.005 (0.949)  0.209 
H  0.001 (0.364)  1 
0.326 (0.017)^{**}  1 
−0.065 (0.385)  1 
0.023 (0.647)  0.145 
I  −0.002 (0.464)  3 
−0.090 (0.000)^{***}  3 
0.115 (0.000)^{***}  1 
0.066 (0.564)  0.760 
J  0.000 (0.767)  1 
−0.044 (0.726)  1 
0.020 (0.650)  1 
−0.080 (0.034)^{**}  0.038^{**} 
K  0.003 (0.038)^{**}  3 
0.380 (0.007)^{***}  1 
−0.119 (0.157)  1 
−0.139 (0.100)  0.781 
L  −0.002 (0.571)  1 
0.149 (0.540)  2 
0.098 (0.055)^{*}  2 
0.075 (0.077)^{*}  0.807 
M  0.001 (0.033)^{**}  1 
0.252 (0.034)^{**}  1 
−0.044 (0.513)  1 
−0.092 (0.021)^{**}  0.526 
N  0.006 (0.006)^{***}  10 
0.347 (0.047)^{*}  10 
−0.433 (0.048)^{*}  1 
−0.164 (0.280)  0.162 
O  −0.001 (0.724)  1 
0.218 (0.258)  1 
0.008 (0.912)  2 
0.045 (0.582)  0.618 
Notes: The numbers in parentheses show the significance level from
testing whether all lagged variables can be excluded from the regression. 
Bank  Constant  Trend  Trend 1  Trend 2  Lags of change in capital (capital increasing) 
Lags of change in capital (capital decreasing) 
Lags of asset volatility  Significance of testing 


No. of lags 
Sum of coefficients  No. of lags 
Sum of coefficients  No. of lags 
Sum of coefficients  
A  0.000 (0.698) 
0.00003 (0.036)^{**} 
0.00004 (0.002)^{***} 
1 
0.461 (0.002)^{***} 
1 
−0.227 (0.304) 
1 
0.621 (0.000)^{***} 
0.034^{**} 

B  0.005 (0.008)^{***} 
1 
−0.120 (0.552) 
1 
0.249 (0.012)^{**} 
1 
0.754 (0.000)^{***} 
0.133 

C  0.031 (0.00)^{***} 
−0.00025 (0.000)^{***} 
1 
0.377 (0.052)^{*} 
1 
0.104 (0.148) 
2 
0.458 (0.000)^{***} 
0.195 

D  0.001 (0.421) 
0.00004 (0.004)^{***} 
1 
0.367 (0.011)^{**} 
1 
−0.122 (0.314) 
1 
0.684 (0.000)^{***} 
0.033^{**} 

E  0.009 (0.000)^{***} 
1 
0.210 (0.277) 
1 
−0.032 (0.648) 
2 
0.462 (0.000)^{***} 
0.267 

G  0.004 (0.001)^{***} 
3 
0.285 (0.000)^{***} 
1 
−0.971 (0.037)^{**} 
2 
0.642 (0.000)^{***} 
0.052^{*} 

H  −0.014 (0.000)^{***} 
0.00014 (0.000)^{***} 
7 
2.125 (0.000)^{***} 
10 
−1.129 (0.003)^{***} 
2 
0.261 (0.000)^{***} 
0.002^{***} 

I  −0.032 (0.000)^{***} 
0.00031 (0.000)^{***} 
1 
0.225 (0.199) 
4 
0.610 (0.012)^{**} 
1 
0.155 (0.389) 
0.451 

J  0.026 (0.000)^{***} 
−0.00006 (0.004)^{***} 
1 
0.367 (0.129) 
1 
0.113 (0.402) 
2 
0.364 (0.000)^{***} 
0.436 

K  0.020 (0.001)^{***} 
0.00010 (0.039)^{**} 
0.00002 (0.614) 
3 
0.605 (0.002)^{***} 
1 
−0.463 (0.122) 
9 
0.050 (0.000)^{***} 
0.046^{**} 

L  0.033 (0.000)^{***} 
4 
−2.297 (0.000)^{***} 
6 
1.746 (0.000)^{***} 
4 
−0.386 (0.000)^{***} 
0.000^{***} 

M  0.001 (0.211)^{**} 
1 
0.222 (0.048)^{**} 
12 
0.475 (0.103) 
5 
0.958 (0.000)^{***} 
0.435 

N  0.002 (0.243) 
1 
0.575 (0.012)^{***} 
12 
0.114 (0.000)^{***} 
6 
0.845 (0.000)^{***} 
0.291 

O  0.001 (0.705) 
3 
1.885 (0.072)^{*} 
3 
−0.835 (0.057)^{*} 
1 
0.700 (0.000)^{***} 
0.010^{***} 

Notes: The numbers in parentheses show the significance level from
testing whether all lagged variables can be excluded from the regression. 