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13 resources
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A*
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FT50 UTD24 A*
This paper empirically examines how capital affects a bank’s performance (survival and market share) and how this effect varies across banking crises, market crises, and normal times that occurred in the US over the past quarter century. We have two main results. First, capital helps small banks to increase their probability of survival and market share at all times (during banking crises, market crises, and normal times). Second, capital enhances the performance of medium and large banks primarily during banking crises. Additional tests explore channels through which capital generates these effects. Numerous robustness checks and additional tests are performed.
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FT50 UTD24 A*
Although the modern theory of financial intermediation portrays liquidity creation as an essential role of banks, comprehensive measures of bank liquidity creation do not exist. We construct four measures and apply them to data on virtually all U.S. banks from 1993 to 2003. We find that bank liquidity creation increased every year and exceeded $2.8 trillion in 2003. Large banks, multibank holding company members, retail banks, and recently merged banks created the most liquidity. Bank liquidity creation is positively correlated with bank value. Testing recent theories of the relationship between capital and liquidity creation, we find that the relationship is positive for large banks and negative for small banks.
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FT50 UTD24 A*
Collateral is a widely used, but not well understood, debt contracting feature. Two broad strands of theoretical literature explain collateral as arising from the existence of either ex ante private information or ex post incentive problems between borrowers and lenders. However, the extant empirical literature has been unable to isolate each of these effects. This paper attempts to do so using a credit registry that is unique in that it allows the researcher to have access to some private information about borrower risk that is unobserved by the lender. The data also include public information about borrower risk, loan contract terms, and ex post performance for both secured and unsecured loans. The results suggest that the ex post theories of collateral are empirically dominant, although the ex ante theories are also valid for customers with short borrower–lender relations that are relatively unknown to the lender.
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A*
The literature demonstrates numerous consequences of bank geographic deregulation, but neglects bank capital structure – critical to performance, resilience, and prudential regulation/supervision. We supply first-time evidence on geographic deregulation effects on bank capital. We also distinguish and test two novel mechanisms through which geographic deregulation may affect bank behavior. The competitive defense and competitive offense mechanisms differentiate deregulation effects in increasing external competitive pressures on banks versus expanding banks’ capacity to compete externally. We find statistically and economically significant evidence of geographic deregulation effects on two bank capital management tools – target capital ratios and speeds of adjustment to these targets – yielding higher targets and faster adjustment. Findings are robust to addressing identification concerns using dynamic panel methodology, a gravity-deregulation approach, and time-varying bank-specific instruments. The data also support both the competitive defense and competitive offense mechanisms, suggesting future research and policy applications of these mechanisms to banking and more generally.
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FT50 UTD24 A*
We use novel monthly survey data from 1993 to 2012 on small business managerial perceptions of financial constraints and other conditions, matched with information on banks in their local markets. The data suggest that small banks have comparative advantages in alleviating these constraints. These advantages tend to be greater during adverse economic conditions and do not appear to decrease or increase secularly. Small banks also appear to have comparative advantages in providing liquidity insurance to small business customers of large banks experiencing liquidity shocks during financial crises. Our findings suggest a source of social costs from ongoing consolidation of the banking industry.
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A*
Governments provide bank guarantees, such as deposit insurance. While risk effects are well researched, impacts on bank output remain largely unexplored. We investigate bank output effects using data from 75 countries/regions on bank liquidity creation, a comprehensive bank output measure. We address reverse causality, examining home-country guarantee effects on liquidity creation by subsidiary banks in foreign host nations, and mitigate omitted-variables concerns with host country × year fixed effects and home country controls. Findings suggest home-country guarantees decrease subsidiary bank liquidity creation up to 10%, and hold prior to, during, and after the Global Financial Crisis.
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Journal of Banking and Finance
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Journal of Finance
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Journal of Financial Economics
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