Local financial capacity and asset values: Evidence from bank failures

Raghuram Rajan and Rodney Ramcharan

Journal of Financial Economics, 2016, vol. 120, issue 2, 229-251

Abstract: Using differences in regulation as a means of identification, we find that a reduction in local financial intermediation capacity reduces the recovery rates on assets of failing banks. It also depresses local land prices and is associated with subsequent distress in nearby banks. Fire sales appear to be one channel through which lower local intermediation capacity reduces the recovery rates on failed banks’ assets. The paper provides a rationale for why bank failures are contagious, and why the value of specialized financial assets could depend on the size of the intermediary market that is available to buy it.

Keywords: Financial crises; Banks; Fire-sales (search for similar items in EconPapers)
JEL-codes: E5 G21 N2 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X16000313
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:120:y:2016:i:2:p:229-251

DOI: 10.1016/j.jfineco.2015.01.006

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().