A q-theory of banks

Juliane Begenau, Saki Bigio, Matias Vieyra and Jeremy Majerovitz

No 16670, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We propose a dynamic bank theory with a delayed loss recognition mechanism and a regulatory capital constraint at its core. The estimated model matches four facts about banks' Tobin's Q that summarize bank leverage dynamics. (1) Book and market equity values diverge, especially during crises; (2) Tobin's Q predicts future bank profitability; (3) neither book nor market leverage constraints are binding for most banks; (4) bank leverage and Tobin's Q are mean reverting but highly persistent. We examine a counterfactual experiment where different accounting rules produce a novel policy tradeoff.

Keywords: Banks; Leverage dynamics; Market vs. book values; Delayed accounting (search for similar items in EconPapers)
JEL-codes: E44 G21 G32 G33 (search for similar items in EconPapers)
Date: 2021-10
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Related works:
Journal Article: A Q-Theory of Banks (2026)
Working Paper: A Q-Theory of Banks (2024)
Working Paper: A Q-Theory of Banks (2021)
Working Paper: A Q-Theory of Banks (2021)
Working Paper: A Q-Theory Of Banks (2020)
Working Paper: A Q-Theory of Banks (2020)
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