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U.S. Bank Behavior in the Wake of the 2007-2009 Financial Crisis

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Author Info

  • Dalia Hakura
  • Ralph Chami
  • Thomas F. Cosimano
  • Adolfo Barajas

Abstract

The 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 banks’ 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 Reserve’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 Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/131.

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Length: 30
Date of creation: 01 May 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/131

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Related research

Keywords: Commercial banks; Bank credit; Interest rates on loans; Global Financial Crisis 2008-2009; Liquidity; banking; bank holding; bank holding companies; capital ratio; bank capital; capital loss; banking system; capital losses; liquid asset; interest expense; net interest margin; bank lending; banking activities; bank behavior; tier 1 capital; nonperforming loan; bank assets; off ? balance sheet; bank profitability; bank activities; holding company; bank loans; capital ? to ? asset ratio; off balance sheet; return on equity; bank holding company; capital crunch; interbank market; basel accord; cost of capital; banking institutions; return on assets; call options; capital markets; banking industry; equity capital; purchase of securities; capital increases; loan loss provision; asset ? backed securities; liquidity ratio; bank competition; banking sector; capital to asset ratio; capital ? asset; marketable securities; bank equity; banking market; central banking; asset backed securities; capital structure; mortgage backed securities; bank run; subordinated debt; capital asset ratio; present value; bank profits; capital injection; interest sensitivity; bank management; capital ? asset ratio; capital asset; bank size; deposit insurance; bank intermediation;

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References

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  1. 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.
  2. Todd Keister & James McAndrews, 2009. "Why are banks holding so many excess reserves?," Staff Reports, Federal Reserve Bank of New York 380, Federal Reserve Bank of New York.
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Citations

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Cited by:
  1. Thomas F. Cosimano & Dalia Hakura, 2011. "Bank Behavior in Response to Basel Iii," IMF Working Papers 11/119, International Monetary Fund.
  2. 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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