As the Basel III reforms, which come into effect from 2012, place emphasis on default risk, assessing the impact of Prompt Corrective Action (PCA) on default risk is of practical relevance. We provide strong evidence that both the dynamic and the contemporaneous impact of the PCA-defined tier 1...

This paper investigates the relation between bank dividends and bank risk over the period 1984–2011, and assesses the existence of risk-taking and risk-shifting in the US commercial banking sector subject to regulatory regime changes. The introduction of PCA in 1992 and TARP in 2008 constitute...

We explore the link between the default risk and equity prices for the U.S. aggregate banking sector over the last 30 years using a regime switching methodology which allows for changes in regulation and the recent financial crisis. We reveal that the default risk exercises a causal effect on...