Banks Adjust Slowly: Evidence and Lessons for Modeling
Saki Bigio and
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Juliane Begenau: Stanford GSB & NBER
Jeremy Majerovitz: MIT
Research Papers from Stanford University, Graduate School of Business
We investigate the behavior of bank balance sheets in the United States during 2007-2015. The goal is to deepen the understanding of the behavior of banks. During this period, bank aggregate book-equity losses were entirely offset by equity issuances whereas market-value losses were catastrophic and never recovered. We find evidence that supports a theory where banks target market leverage, but where adjustments to a target are very gradual. We also find that, in contrast to the pre-crisis period, during the post-crisis banks relied more on retained earnings rather than on assets sales to adjust to a market leverage target. We present a heterogeneous-bank model that rationalizes these facts and can serve as a building block for future work.
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3672
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