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Leverage across firms, banks, and countries

Author

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  • Kalemli-Ozcan, Sebnem
  • Sorensen, Bent
  • Yesiltas, Sevcan

Abstract

We present new stylized facts on bank and firm leverage during the period 2000–2009 using internationally comparable micro level data from many countries. We document the following patterns: a) there was an increase in leverage for investment banks prior to the sub-prime crisis; b) there was no visible increase in leverage for the typical commercial bank and non-financial firm; c) off-balance-sheet items constitute a big fraction of assets, especially for large commercial banks in the US, whereas investment banks do not report these items; d) the leverage ratio is procyclical for investment banks and for large commercial banks in the US; e) banks in emerging markets with tighter bank regulation and stronger investor protection experienced significantly less deleveraging during the crisis. The results suggest that excessive risk taking before the crisis was not easily detectable because the risk involved the quality rather than the quantity of assets.

Suggested Citation

  • Kalemli-Ozcan, Sebnem & Sorensen, Bent & Yesiltas, Sevcan, 2012. "Leverage across firms, banks, and countries," Journal of International Economics, Elsevier, vol. 88(2), pages 284-298.
  • Handle: RePEc:eee:inecon:v:88:y:2012:i:2:p:284-298
    DOI: 10.1016/j.jinteco.2012.03.002
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    More about this item

    Keywords

    Leverage; Crisis; International; Banks; Firms;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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