Bank Leverage and Regulatory Regimes: Evidence from the Great Depression and Great Recession

Christoffer Koch, Gary Richardson and Patrick Van Horn

American Economic Review, 2016, vol. 106, issue 5, 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.

JEL-codes: E32 E44 E58 G01 G21 G28 N22 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.p20161045
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Citations: View citations in EconPapers (10)

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