On the scale of financial intermediaries

Tobias Adrian, Nina Boyarchenko and Hyun Song Shin

No 743, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper studies the economic scale of financial institutions. We show that banks and security broker-dealers actively smooth book equity by adjusting payouts. The smoothing of book equity is associated with procyclical book leverage and procyclical net payouts. In contrast, market leverage largely reflects movements in valuation levels as measured by book-to-market ratios. The 2008 crisis caused a structural break, after which the growth rates of the banking and dealer sectors have been subdued relative to pre-crisis levels. We draw conclusions for theories of financial intermediation and for capital regulation..

Keywords: capital regulations; financial intermediation; macro-finance (search for similar items in EconPapers)
JEL-codes: E02 E32 G00 G28 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-10-01
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-mac
Note: Previous title: "The Cyclicality of Leverage"
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Citations: View citations in EconPapers (15)

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