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Leverage across firms, banks, and countries

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  • Kalemli-Ozcan, Sebnem
  • Sorensen, Bent
  • Yesiltas, Sevcan

Abstract

We present new stylized facts on bank and firm leverage during the period 2000–2009 using internationally comparable micro level data from many countries. We document the following patterns: a) there was an increase in leverage for investment banks prior to the sub-prime crisis; b) there was no visible increase in leverage for the typical commercial bank and non-financial firm; c) off-balance-sheet items constitute a big fraction of assets, especially for large commercial banks in the US, whereas investment banks do not report these items; d) the leverage ratio is procyclical for investment banks and for large commercial banks in the US; e) banks in emerging markets with tighter bank regulation and stronger investor protection experienced significantly less deleveraging during the crisis. The results suggest that excessive risk taking before the crisis was not easily detectable because the risk involved the quality rather than the quantity of assets.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 88 (2012)
Issue (Month): 2 ()
Pages: 284-298

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Handle: RePEc:eee:inecon:v:88:y:2012:i:2:p:284-298

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Leverage; Crisis; International; Banks; Firms;

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Citations

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Cited by:
  1. Ricetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Unemployment benefits and financial leverage in an agent based macroeconomic model," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(42), pages 1-44.
  2. A. Baglioni & E. Beccalli & A. Boitani & A. Monticini, 2013. "Is the leverage of European banks procyclical?," Empirical Economics, Springer, Springer, vol. 45(3), pages 1251-1266, December.
  3. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Financialisation and Crisis in an Agent Based Macroeconomomic Model," MPRA Paper 51074, University Library of Munich, Germany.
  4. Queraltó, Albert, 2013. "A Model of Slow Recoveries from Financial Crises," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1097, Board of Governors of the Federal Reserve System (U.S.).
  5. Antoine Godin & Stephen Kinsella, 2012. "Leverage, liquidity and crisis: A simulation study," ASSRU Discussion Papers, ASSRU - Algorithmic Social Science Research Unit 1205, ASSRU - Algorithmic Social Science Research Unit.
  6. Lendvai, Julia & Raciborski, Rafal & Vogel, Lukas, 2013. "Macroeconomic effects of an equity transaction tax in a general-equilibrium model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(2), pages 466-482.
  7. Hsu, Sara, 2012. "The US financial system, the great recession, and the “speculative spread”," MPRA Paper 38478, University Library of Munich, Germany.
  8. Teixeira, João C.A. & Silva, Francisco J.F. & Fernandes, Ana V. & Alves, Ana C.G., 2014. "Banks’ capital, regulation and the financial crisis," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 33-58.
  9. Russo, Alberto, 2013. "Financial Fragility and Macroeconomic Instability in a Heterogeneous Interacting Agents Framework," MPRA Paper 46578, University Library of Munich, Germany.
  10. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Leveraged network-based financial accelerator," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(8), pages 1626-1640.
  11. Adrian Van Rixtel & Gabriele Gasperini, 2013. "Financial crises and bank funding: recent experience in the euro area," BIS Working Papers 406, Bank for International Settlements.
  12. Riccetti, Luca & Russo, Alberto & Mauro, Gallegati, 2013. "Financial Regulation in an Agent Based Macroeconomic Model," MPRA Paper 51013, University Library of Munich, Germany.

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