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U.S. Bank Behavior in the Wake of the 2007–2009 Financial Crisis

Dalia Hakura, Ralph Chami (), Thomas Cosimano () and Adolfo Barajas

No 10/131, IMF Working Papers from International Monetary Fund

Abstract: The paper examines the slowdown of lending by large U.S. banks over the period 2007Q3 - 2009Q2, focusing on: (i) whether capital or liquidity was the binding constraint; (ii) factors influencing banks’ decision to hold capital; and (iii) their pricing behavior. Using quarterly data for the largest U.S. banks, the paper finds that capital, rather than liquidity, constrained lending. Banks took actions to increase capital by slowing lending and raising profit margins, not fully passing through the Federal Reserve’s interest rate cuts. Banks optimally choose capital based on the expected future demand for loans and the marginal cost of capital.

Keywords: Commercial banks; Monetary policy; United States; capital constraints, banking, bank holding, bank holding companies, capital ratio, bank capital, Central Banking, And The Supply Of Money And Credit, financial Institutions And Services, (search for similar items in EconPapers)
Pages: 30
Date: 2010-05-01
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cba and nep-fmk
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