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Portfolio and financing adjustments for U.S. banks: Some empirical evidence

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  • Krainer, Robert
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    Abstract

    This paper presents a model of the portfolio and financing adjustments of U.S. banks over the business cycle. At the core of the model is a moral hazard problem between depositors/bank regulators and stockholders. The solution to this problem takes the form of shared management of the bank. Stockholders manage the bank's portfolio and the regulator manages the financing of the portfolio. The model predicts that portfolio adjustments are made to conform to the risk aversion of shareholders and financing adjustments are made to offset changes in portfolio risk. Regression evidence for 1955-2000 fails to reject these predictions.

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    File URL: http://www.sciencedirect.com/science/article/B7CRR-4SF3063-2/2/0033c55d435d623c49b07ba44643cb5f
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Stability.

    Volume (Year): 5 (2009)
    Issue (Month): 1 (January)
    Pages: 1-24

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    Handle: RePEc:eee:finsta:v:5:y:2009:i:1:p:1-24

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    Web page: http://www.elsevier.com/locate/jfstabil

    Related research

    Keywords: Banks Business cycles Basle accord Financial cycles;

    References

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    Cited by:
    1. Krainer, Robert E., 2012. "Regulating Wall Street: The Dodd–Frank Act and the New Architecture of Global Finance, a review," Journal of Financial Stability, Elsevier, vol. 8(2), pages 121-133.
    2. Wilson, Linus & Wu, Yan Wendy, 2012. "Escaping TARP," Journal of Financial Stability, Elsevier, vol. 8(1), pages 32-42.

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