Leverage, balance-sheet size and wholesale funding

Evren Damar, Césaire A. Meh and Yaz Terajima

Journal of Financial Intermediation, 2013, vol. 22, issue 4, 639-662

Abstract: Positive co-movements in bank leverage and assets are associated with leverage procyclicality. As wholesale funding allows banks to quickly adjust leverage, banks with wholesale funding are expected to exhibit higher leverage procyclicality. Using Canadian data, we analyze (i) if leverage procyclicality exists and its dependence on wholesale funding, (ii) market factors associated with this procyclicality, and (iii) if banking-sector leverage procyclicality forecasts market volatility. The findings suggest that procyclicality exists and that its degree positively depends on use of wholesale funding. Furthermore, funding-market liquidity matters for this procyclicality. Finally, banking-sector leverage procyclicality can forecast volatility in the equity market.

Keywords: Financial institutions; Leverage procyclicality; Wholesale funding; Funding liquidity; Market volatility (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042957313000314
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Leverage, Balance Sheet Size and Wholesale Funding (2010)
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:jfinin:v:22:y:2013:i:4:p:639-662

DOI: 10.1016/j.jfi.2013.07.002

Access Statistics for this article

Journal of Financial Intermediation is currently edited by Elu von Thadden

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