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Leverage, wholesale funding and national risk attitude

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  • Dewally, Michaël
  • Shao, Yingying

Abstract

This study examines the procyclicality of leverage among financial institutions using international evidence. Procyclicality occurs when financial institutions actively manage their balance sheets and use non-equity funding to finance change in assets. Since wholesale funding allows financial institutions to adjust their financial leverage quickly, we investigate whether financial institutions that rely more on wholesale funding (traditional deposit funding) show a higher (lower) degree of leverage procyclicality. Using balance sheet data for financial institutions of 49 countries, this study identifies a positive link between assets growth and leverage growth. In addition, we show that the positive impact of wholesale funding on procyclicality varies across market condition and national risk attitude.

Suggested Citation

  • Dewally, Michaël & Shao, Yingying, 2013. "Leverage, wholesale funding and national risk attitude," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 179-195.
  • Handle: RePEc:eee:intfin:v:23:y:2013:i:c:p:179-195 DOI: 10.1016/j.intfin.2012.10.001
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:ememar:v:32:y:2017:i:c:p:168-189 is not listed on IDEAS
    2. Hernán Rincón-Castro & Norberto Rodríguez-Niño, 2016. "Nonlinear Pass-Through of Exchange Rate Shocks on Inflation: A Bayesian Smooth Transition VAR Approach," BORRADORES DE ECONOMIA 014299, BANCO DE LA REPÚBLICA.
    3. Katarzyna Growiec & Jakub Growiec & Bogumil Kaminski, 2017. "Mapping the Dimensions of Social Capital," Working Papers 2017-025, Warsaw School of Economics, Collegium of Economic Analysis.
    4. Thomas J. Carter, 2017. "Optimal Interbank Regulation," Staff Working Papers 17-48, Bank of Canada.
    5. Hernán Rincón-Castro & Norberto Rodríguez-Niño, 2016. "Nonlinear Pass-Through of Exchange Rate Shocks on Inflation: A Bayesian Smooth Transition VAR Approach," Borradores de Economia 930, Banco de la Republica de Colombia.
    6. Maciej Albinowski, 2017. "The role of fractional-reserve banking in amplifying credit booms: evidence from panel data," Working Papers 2016-024, Warsaw School of Economics, Collegium of Economic Analysis.
    7. E Philip Davis & D Karim, 2014. "Exploring the Short- and Long-Run Links from Bank Competition to Risk – Reconciling Conflicting Hypotheses?," National Institute of Economic and Social Research (NIESR) Discussion Papers 421, National Institute of Economic and Social Research.

    More about this item

    Keywords

    Capital structure; Leverage; Wholesale funding; National culture;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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