RT Journal Article
SR 00
ID 10.1093/rof/rfac046
A1 Gersbach, Hans
A1 Rochet, Jean-Charles
A1 Scheffel, Martin
T1 Financial Intermediation, Capital Accumulation, and Crisis Recovery
JF Review of Finance
YR 2022
FD 2022-09-08
K1 Financial intermediation
K1 capital accumulation
K1 banking crisis
K1 macroeconomic shocks
K1 business cycles
K1 bust-boom cycles
K1 managing recoveries
AB We integrate bank and bond financing into a two-sector neoclassical growth model and identify an automatic stabilization effect due to endogenous bank leverage adjustment. We show that although bank leverage amplifies shocks, the increase of leverage due to a decline in bank equity partially offsets the post crisis decline of bank lending and accelerates economic recovery by reducing the persistence of the bank lending channel. In this case, endogenous leverage adjustment is an automatic stabilizer. Regulatory state-independent capital limits and wage rigidities impair the re-allocation of capital between sectors and weaken this automatic stabilization. A quantitative analysis of the US during the Great Recession shows that the magnitude of automatic stabilization can be significant and informs about potentially high costs of strict capital regulation or wage rigidities during banking crises.
PB Kluwer
SN 1572-3097
LK https://publications.ut-capitole.fr/id/eprint/47322/
UL http://tse-fr.eu/pub/128013