Document Type


Publication Date



The rapid growth of OBSA in recent years has concerned bank regulators that such OBSA are risk-increasing and should be brought under control throughadditional capital requirements. Previous empirical literature tested the riskiness of certain OBSA by employing systematic or total risk as dependent variables, and documented that some OBSA may reduce bank risk. This paper reexamines the relationship between market values, accounting values of bank stock and OBSA. This paper tests the implication of OBSA on market values of bank equity by employing a generalized Gordon-type stock valuation model. The results support the hypothesis that book values of equity predict market values of bank stock significantly, and OBSA do not appear to influence market values of bank stock. Because diversified investors are concerned with systematic risk and hence market values of equities, additional capital requirements of OBSA may be inappropriate.