A Theory of Payments Crises

Saki Bigio

No 1537, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We provide a descriptive account of aggregate and bank-level nancial ows that occurred during the nancial crisis of 2007-2009 and its aftermath. We collect the following facts: [1] the commercial banking system increased their assets by as much as the shadow banking industry was reduced. [2] Traditional banks suered $656B equity losses. [3] There has been a persistent and substantial discrepancy between book and market equity values for many banks during the period. [4] Low market- to-book banks predicted low earnings and dividend payments. [5] Despite [4], there are no substantial dierences in lending and borrowing in the cross-section: book assets seem to be sticky. We draw on these observations to raise further empirical questions and suggest guidelines for improving banking and macroeconomic models.

Date: 2015
New Economics Papers: this item is included in nep-ban
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