IDEAS home Printed from https://ideas.repec.org/p/chf/rpseri/rp1962.html

Financial Intermediation, Capital Accumulation and Crisis Recovery

Author

Listed:
  • Hans Gersbach

    (ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR))

  • Jean-Charles Rochet

    (GFRI, University of Geneva; Swiss Finance Institute; University of Zurich - Swiss Banking Institute (ISB))

  • Martin Scheffel

    (Karlsruhe Institute of Technology)

Abstract

We integrate bank and bond financing into a two-sector neoclassical growth model to examine the stabilization effect of endogenous bank leverage adjustment. We show that although bank leverage amplifies shocks, the increase of leverage to a decline in bank equity is an automatic stabilizer in downturns, since it partially offsets the decline of bank lending to financially constrained firms. Regulatory capital limits and wage rigidities impair the re-allocation of capital between sectors and weaken the automatic stabilization channel. A quantitative analysis of the US in the Great Recession shows that the magnitude of automatic stabilization is significant and informs about potentially high costs of strict capital regulation or wage rigidities in banking crises.

Suggested Citation

  • Hans Gersbach & Jean-Charles Rochet & Martin Scheffel, 2019. "Financial Intermediation, Capital Accumulation and Crisis Recovery," Swiss Finance Institute Research Paper Series 19-62, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1962
    as

    Download full text from publisher

    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3501566
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Althanns, Markus & Gersbach, Hans, 2023. "The Monetary Policy Haircut Rule," CEPR Discussion Papers 18228, C.E.P.R. Discussion Papers.
    3. Hans Gersbach & Jean-Charles Rochet & Martin Scheffel, 2023. "Financial Intermediation, Capital Accumulation, and Crisis Recovery," Review of Finance, European Finance Association, vol. 27(4), pages 1423-1469.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp1962. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ridima Mittal (email available below). General contact details of provider: https://edirc.repec.org/data/fameech.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.