The determinants of bank capital structure
AbstractThe paper shows that mispriced deposit insurance and capital regulation were of second order importance in determining the capital structure of large U.S. and European banks during 1991 to 2004. Instead, standard cross-sectional determinants of non-financial firms’ leverage carry over to banks, except for banks whose capital ratio is close to the regulatory minimum. Consistent with a reduced role of deposit insurance, we document a shift in banks’ liability structure away from deposits towards non-deposit liabilities. We find that unobserved time-invariant bank fixed effects are ultimately the most important determinant of banks’ capital structures and that banks’ leverage converges to bank specific, time invariant targets. JEL Classification: G32, G21
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1096.
Date of creation: Sep 2009
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Other versions of this item:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-31 (All new papers)
- NEP-BAN-2009-10-31 (Banking)
- NEP-BEC-2009-10-31 (Business Economics)
- NEP-CFN-2009-10-31 (Corporate Finance)
- NEP-REG-2009-10-31 (Regulation)
- NEP-RMG-2009-10-31 (Risk Management)
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