Bank Leverage Cycles
By Galo Nuño, Carlos Thomas. Social Science Research Network, 2017
132 citations recorded by the source corpus.
We study the cyclical fluctuations of leverage and assets of financial intermediaries and GDP in the United States. Leverage and assets are several times more volatile than GDP, and experience larger fluctuations for unregulated (‘shadow’) intermediaries than for regulated ones. While the leverage of regulated intermediaries is rather acyclical with respect to their assets and to GDP, the leverage of unregulated intermediaries is strongly procyclical in relation to their assets, and mildly procyclical in relation to GDP. We then build a general equilibrium model with both regulated and unregulated financial intermediaries. The latter borrow from investors in the form of short-term collateralized risky debt, and are subject to endogenous leverage constraints. We find that volatility shocks are key to generating fluctuations and comovements similar to those found in the data. Also, in a scenario with lower cross-sectional volatility, output is higher on average but more volatile, due to higher leverage of unregulated banks.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/ad4f6c1fb4f06c925f60698eef36e98c6f69df82
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Citations in the corpus
- Sustainable Shadow Banking (2013, background): “See, for example, Poznar et al. (2012); Levitin and Wachter (2012); Mian and Sufi (2014); and Jordà, Schularick, and Taylor (2016) for evidence of asset bubbles prior to the recent financial collapse, and see Nuño and Thomas (2017) and Jordà, Schularick, and Taylor (2016) for evidence of bank levera”
- Monetary Policy, Financial Conditions, and Financial Stability (2014, unknown): “Adrian and Boyarchenko (2012) and Nuño and Thomas (2014) provide theories that rationalize these facts within dynamic stochastic general equilibrium (DSGE) models.”