Bank Capital Redux: Solvency, Liquidity, and Crisis

By Ò. Jordà, Björn Richter, M. Schularick, Alan M. Taylor. The Review of Economic Studies, 2017

173 citations recorded by the source corpus.

What is the relationship between bank capital, the risk of a financial crisis, and its severity? This article introduces the first comprehensive analysis of the long-run evolution of the capital structure of modern banking using newly constructed data for banks’ balance sheets in 17 countries since 1870. In addition to establishing stylized facts on the changing funding mix of banks, we study the nexus between capital structure and financial instability. We find no association between higher capital and lower risk of banking crisis. However, economies with better capitalized banking systems recover faster from financial crises as credit begins to flow back more readily.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/bbc8984deaf116f706226a9a70f5fc889e6f198e

Citations in the corpus

• How do banks react to catastrophic events? Evidence from Hurricane Katrina (2019, unknown): “…large share of independent and high-capitalized bank versus a county with only BHC banks and relatively low-capitalized banks.4 4These numbers seem to be very high, but a recent study by Jordà et al. (2017) also finds very high effects for a cross-country sample with data from 1870 to 2013.”