Abstract
This study reports the results of a longitudinal analysis of the nature of the association between selected bank capital (book value) measures and relative profitability, with emphasis on high-performance banks. Capital is a major component variable in bank financial management. Interest in bank capital has been stimulated recently b deregulation and the rash of bank failures. Conceptually, every decision should be considered for its impact on the maximization of shareholder wealth. However, in a world of uncertainty, regulation, and limited action/reaction time and resources, it is not possible to follow the conceptually correct approach for the multitude of decisions bankers face. One practical approach to the complex, interactive nature of bank decisions is to disaggregate them into key variables for financial management: (1) spread management (net interest margin), (2) overhead expense control, (3) liquidity management, and (4) capital management. Both liquidity and capital are related to the risk component of bank financial management, while the other two variables are related to the income competent.
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