Bank Capital Redux: Solvency, Liquidity, and Crisis

Oscar Jorda, Björn Richter, Moritz Schularick and Alan Taylor

No 2017-6, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Higher capital ratios are unlikely to prevent a financial crisis. This is empirically true both for the entire history of advanced economies between 1870 and 2013 and for the post-WW2 period, and holds both within and between countries. We reach this startling conclusion using newly collected data on the liability side of banks? balance sheets in 17 countries. A solvency indicator, the capital ratio has no value as a crisis predictor; but we find that liquidity indicators such as the loan-to-deposit ratio and the share of non-deposit funding do signal financial fragility, although they add little predictive power relative to that of credit growth on the asset side of the balance sheet. However, higher capital buffers have social benefits in terms of macro-stability: recoveries from financial crisis recessions are much quicker with higher bank capital.

JEL-codes: E44 G01 G21 N20 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2017-03-28
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-his and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

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Related works:
Journal Article: 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 (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)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2017-06

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DOI: 10.24148/wp2017-06-er

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