Gersbach, Hans, Rochet, Jean-Charles and Scheffel, Martin (2022) Financial Intermediation, Capital Accumulation, and Crisis Recovery. Review of Finance.

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Identification Number : 10.1093/rof/rfac046


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.

Item Type: Article
Language: English
Date: 8 September 2022
Refereed: Yes
Place of Publication: Dordrecht
Uncontrolled Keywords: Financial intermediation, capital accumulation, banking crisis, macroeconomic shocks, business cycles, bust-boom cycles, managing recoveries
JEL Classification: E21 - Macroeconomics - Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
E32 - Business Fluctuations; Cycles
G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G28 - Government Policy and Regulation
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 19 Apr 2023 11:31
Last Modified: 19 Apr 2023 11:32
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