U.S. Bank Behavior in the Wake of the 2007–2009 Financial Crisis
The paper examines the slowdown of lending by large U.S. banks over the period 2007Q3 - 2009Q2, focusing on: (i) whether capital or liquidity was the binding constraint; (ii) factors influencing banks’ decision to hold capital; and (iii) their pricing behavior. Using quarterly data for the largest U.S. banks, the paper finds that capital, rather than liquidity, constrained lending. Banks took actions to increase capital by slowing lending and raising profit margins, not fully passing through the Federal Reserve’s interest rate cuts. Banks optimally choose capital based on the expected future demand for loans and the marginal cost of capital.
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Todd Keister & James J. McAndrews, 2009.
"Why are banks holding so many excess reserves?,"
Current Issues in Economics and Finance,
Federal Reserve Bank of New York, vol. 15(Dec).
- Todd Keister & James J. McAndrews, 2009. "Why are banks holding so many excess reserves?," Staff Reports 380, Federal Reserve Bank of New York.
- Asani Sarkar, 2009. "Liquidity risk, credit risk, and the Federal Reserve's responses to the crisis," Staff Reports 389, Federal Reserve Bank of New York. Full references (including those not matched with items on IDEAS)
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