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A Theory of Payments Crises

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  • Saki Bigio

    (Columbia GSB)

Abstract

We provide a descriptive account of aggregate and bank-level nancial ows that occurred during the nancial crisis of 2007-2009 and its aftermath. We collect the following facts: [1] the commercial banking system increased their assets by as much as the shadow banking industry was reduced. [2] Traditional banks suered $656B equity losses. [3] There has been a persistent and substantial discrepancy between book and market equity values for many banks during the period. [4] Low market- to-book banks predicted low earnings and dividend payments. [5] Despite [4], there are no substantial dierences in lending and borrowing in the cross-section: book assets seem to be sticky. We draw on these observations to raise further empirical questions and suggest guidelines for improving banking and macroeconomic models.

Suggested Citation

  • Saki Bigio, 2015. "A Theory of Payments Crises," 2015 Meeting Papers 1537, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:1537
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    References listed on IDEAS

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    1. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    2. Zhiguo He & In Gu Khang & Arvind Krishnamurthy, 2010. "Balance Sheet Adjustments during the 2008 Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 58(1), pages 118-156, August.
    3. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
    4. McLeay, Michael & Radia, Amar & Thomas, Ryland, 2014. "Money creation in the modern economy," Bank of England Quarterly Bulletin, Bank of England, vol. 54(1), pages 14-27.
    5. Zhiguo He & In Gu Khang & Arvind Krishnamurthy, 2010. "Balance Sheet Adjustments in the 2008 Crisis," NBER Working Papers 15919, National Bureau of Economic Research, Inc.
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