IMF Working Papers

Capital Structures and Portfolio Composition During Banking Crisis: Lessons from Argentina 1995

By Alberto M. Ramos

August 1, 1998

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Alberto M. Ramos Capital Structures and Portfolio Composition During Banking Crisis: Lessons from Argentina 1995, (USA: International Monetary Fund, 1998) accessed November 12, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper constructs a theoretical framework that rationalizes banks’ short- and long-run adjustment dynamics—in portfolio composition and in the capital structure—following a period of financial distress. The model captures stylized facts about banks’ behavior following a shock to the capital base—namely, the rush to liquidity and credit crunch. Bank panel data show that Argentine domestic retail banks underwent a period of adjustment of six quarters following the Mexican devaluation crisis, reducing their risk-exposure since, owing to bank capital scarcity, depositors became less prone to tolerate bank default risk. Foreign-owned banks suffered a milder shock and adjusted immediately.

Subject: Banking, Bonds, Capital adequacy requirements, Deposit insurance, Financial crises, Financial institutions, Insurance, Loans, Stocks

Keywords: ÷ assets, Adjustment dynamics, Argentina, Asset risk, Bank Capital, Bank default risk, Bank regulator, Banking Crisis, Banking Distress, Bonds, Capital base, Capital structure, Central bank, Deposit insurance, Expected return, Exposure bank, Insurance, Insurance bank, Loans, Optimal portfolio, Present discounted value, Stocks, Tequila effect, Vault reserve, WP

Publication Details

  • Pages:

    54

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1998/121

  • Stock No:

    WPIEA1211998

  • ISBN:

    9781451854350

  • ISSN:

    1018-5941