Bank Capital Redux: Solvency, Liquidity, and Crisis

Oscar Jorda, Björn Richter, Moritz Schularick and Alan Taylor

The Review of Economic Studies, 2021, vol. 88, issue 1, 260-286

Abstract: What is the relationship between bank capital, the risk of a financial crisis, and its severity? This article introduces the first comprehensive analysis of the long-run evolution of the capital structure of modern banking using newly constructed data for banks’ balance sheets in 17 countries since 1870. In addition to establishing stylized facts on the changing funding mix of banks, we study the nexus between capital structure and financial instability. We find no association between higher capital and lower risk of banking crisis. However, economies with better capitalized banking systems recover faster from financial crises as credit begins to flow back more readily.

Keywords: Financial crises; Risk-taking; Crisis prediction; Local projections; Bank liabilities; Capital ratio; Macroprudential regulation; E44; G01; G21; N20 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (33)

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Related works:
Working Paper: Bank Capital Redux: Solvency, Liquidity, and Crisis (2021)
Working Paper: Bank Capital Redux: Solvency, Liquidity, and Crisis (2021)
Working Paper: Bank Capital Redux: Solvency, Liquidity, and Crisis (2017)
Working Paper: Bank Capital Redux: Solvency, Liquidity, and Crisis (2017)
Working Paper: Bank Capital Redux: Solvency, Liquidity, and Crisis (2017)
Working Paper: Bank Capital Redux: Solvency, Liquidity, and Crisis (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:88:y:2021:i:1:p:260-286.

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