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Bank heterogeneity and capital allocation: evidence from \\"fracking\\" shocks

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Abstract

This paper empirically investigates banks? ability to reallocate capital. I use unconventional energy development to identify unsolicited deposit inflows and then I estimate how banks allocate these deposits over the recent business cycle. To condition on credit demand, I compare banks? allocations within affected areas over time and in the cross section. When conditions deteriorate, liquid asset allocations increase and loan allocations decrease. Banks with fewer funding sources and higher capital ratios reduce loan allocations more than nearby peers. My results suggest that during adverse times, precautionary liquidity and risk aversion can impede capital reallocation by banks, even in a developed economy.

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  • Matthew Plosser, 2014. "Bank heterogeneity and capital allocation: evidence from \\"fracking\\" shocks," Staff Reports 693, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:693
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    More about this item

    Keywords

    financial intermediation; banks; business cycles;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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