U.S. Bank Behavior in the Wake of the 2007-2009 Financial Crisis
AbstractThe paper examines the slowdown of lending by large U.S. banks over the period 2007Q3 - 2009Q2, focusing on: (i) whether capital or liquidity was the binding constraint; (ii) factors influencing banksâ€™ decision to hold capital; and (iii) their pricing behavior. Using quarterly data for the largest U.S. banks, the paper finds that capital, rather than liquidity, constrained lending. Banks took actions to increase capital by slowing lending and raising profit margins, not fully passing through the Federal Reserveâ€™s interest rate cuts. Banks optimally choose capital based on the expected future demand for loans and the marginal cost of capital.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 10/131.
Date of creation: 01 May 2010
Date of revision:
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Postal: International Monetary Fund, Washington, DC USA
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-17 (All new papers)
- NEP-BAN-2010-07-17 (Banking)
- NEP-BEC-2010-07-17 (Business Economics)
- NEP-CBA-2010-07-17 (Central Banking)
- NEP-FMK-2010-07-17 (Financial Markets)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Asani Sarkar, 2009. "Liquidity risk, credit risk, and the Federal Reserve's responses to the crisis," Staff Reports, Federal Reserve Bank of New York 389, Federal Reserve Bank of New York.
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- Todd Keister & James J. McAndrews, 2009. "Why are banks holding so many excess reserves?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 15(Dec).
- Thomas F. Cosimano & Dalia Hakura, 2011. "Bank Behavior in Response to Basel Iii," IMF Working Papers 11/119, International Monetary Fund.
- Bassett, William F. & Marsh, Blake, 2014. "Assessing Targeted Macroprudential Financial Regulation: The Case of the 2006 Commercial Real Estate Guidance for Banks," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2014-49, Board of Governors of the Federal Reserve System (U.S.).
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