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The Bank Capital Decision: A Time Series—Cross Section Analysis

Journal of Finance 1983 38(4), 1217-1232
This paper seeks to explain the dramatic decline in capital to asset ratios in U.S. commercial banks during the last two decades. It is hypothesized that the rise in nominal interest rates during this period might have contributed substantially to the fall in capital ratios. Time series‐cross section estimation supports the hypothesis regarding the interest rate.