Bank Leverage and Regulatory Regimes: Evidence from the Great Depression and Great Recession
American Economic Review
vol. 106,
no. 5, May 2016
(pp. 538-42)
Abstract
In the boom before the Great Depression, capital requirements for commercial banks were low and fixed. Bankers faced double liability. Failing banks were not bailed out. During the boom before the Great Recession, capital requirements were proportional to risk-weighted assets. Bankers faced limited liability. Banks deemed too big to fail received bailouts. During the 1920s, the largest banks increased capital levels as asset prices rose. During the boom from 2002 to 2007, the largest institutions kept capital levels near regulatory minimums. Our results suggest more market discipline would have induced the largest U.S. banks to hold greater capital buffers prior to the financial crisis of 2008.Citation
Koch, Christoffer, Gary Richardson, and Patrick Van Horn. 2016. "Bank Leverage and Regulatory Regimes: Evidence from the Great Depression and Great Recession." American Economic Review, 106 (5): 538-42. DOI: 10.1257/aer.p20161045Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- E58 Central Banks and Their Policies
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- N22 Economic History: Financial Markets and Institutions: U.S.; Canada: 1913-