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Hilton Atlanta, 205-206-207
Hosted By:
American Finance Association
Financial Crises and Transmission of Shocks
Paper Session
Saturday, Jan. 5, 2019 2:30 PM - 4:30 PM
- Chair: Alan Moreira, University of Rochester
Bank Equity and Banking Crises
Abstract
We construct a new historical dataset on bank equity returns for 46 countries over the period 1870-2016 to develop an informative and objective measure of the occurrence and severity of banking crises. We find that large bank equity declines predict persistent credit contractions and output gaps, after controlling for nonfinancial equities, even outside of banking crises defined by narrative approaches. In particular, severe bank distress without panics are associated with adverse future outcomes. Large bank equity declines tend to precede other crisis indicators, suggesting that substantial bank losses are already present at the early stages of the crisis. Finally, large bank equity declines allow us to refine existing narrative chronologies of banking crises, in which we uncover a number of forgotten banking crises and remove spurious crises.Bank Balance Sheets and Liquidation Values: Evidence from Real Estate Collateral
Abstract
This paper investigates the role of bank balance sheets in shaping the liquidation value of real estate collateral. It finds that liquidation values are lower when the selling bank is closer to insolvency or faces increased funding pressures. These effects are especially large among banks with historically illiquid balance sheets or when the absorptive capacity in the local market is limited. The lower liquidation values obtained in bank sales also reduce the prices of nearby non-bank owned real estate transactions. These results suggest that balance sheet adjustments at financial institutions and the resulting asset sales can help explain asset price dynamics and economic fluctuations.Dynamic Interpretation of Emerging Risks in the Financial Sector
Abstract
We use computational linguistics to develop a dynamic, interpretable methodology that can detect emerging risks in the financial sector. Our model can predict heightened risk exposures as early as mid 2005, well in advance of the 2008 financial crisis. Risks related to real estate, prepayment, and commercial paper are elevated. Individual bank exposure strongly predicts returns, bank failure and return volatility. We also document a rise in market instability since 2014 related to sources of funding and mergers and acquisitions. Overall, our model predicts the build-up of emerging risk in the financial system and bank-specific exposures in a timely fashion.Discussant(s)
Tyler Muir
,
University of California-Los Angeles
Arvind Krishnamurthy
,
Stanford University
Justin Murfin
,
Yale University
Asaf Manela
,
Washington University-St. Louis
JEL Classifications
- G2 - Financial Institutions and Services