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Leverage Across Firms, Banks and Countries

In: Global Financial Crisis

  • Sebnem Kalemli-Ozcan
  • Bent Sorensen
  • Sevcan Yesiltas

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.

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This chapter was published in:
  • Charles Engel & Kristin Forbes & Jeffrey Frankel, 2012. "Global Financial Crisis," NBER Books, National Bureau of Economic Research, Inc, number enge11-2, July.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 13159.
    Handle: RePEc:nbr:nberch:13159
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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