01905cas a2200241 a 4500 AALejournalIMF006721 230101c9999 xx r poo 0 0eng d 5.00 USD 9781455205394 1018-5941 BD-DhAAL BD-DhAAL Valencia, Fabian. Bank Capital and Uncertainty / Fabian Valencia. Washington, D.C. : International Monetary Fund, 2010. 1 online resource (22 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students An important role for bank capital is that of a buffer against unexpected losses. As uncertainty about these losses increases, the theory predicts an increase in the optimal level of bank capital. This paper investigates this implication empirically with U.S. Commercial Banks data and finds statistically significant and robust evidence supporting it. A counterfactual experiment suggests that a decline in uncertainty to the lowest level measured in the sample generates an average reduction in bank capital ratios of slightly over 1 percentage point. However, I also find suggestive evidence that the intensity of this precautionary motive is stronger during recessions. From a policy perspective, these results suggest that the effectiveness of countercyclical capital requirements during bad times will be undermined by banks desire to hold more capital in response to increased uncertainty. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2010/208 Full text available on IMF http://elibrary.imf.org/view/journals/001/2010/208/001.2010.issue-208-en.xml IMF e-Library