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The Impact of Government Intervention on the Stabilization of Domestic Financial Markets and on U.S. Banks’ Asset Composition

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  • Egly, Peter V.
  • Escobari, Diego
  • Johnk, David W.

Abstract

The 2007-2009 financial crisis that evolved from various factors including the housing boom, aggressive lending activity, financial innovation, and increased access to money and capital markets prompted unprecedented U.S. government intervention in the financial sector. We examine changes in banks’ balance sheet composition associated with U.S. government intervention during the crisis. We find that the initial round of quantitative easing positively impacts bank liquidity across all bank samples. Our results show a positive impact of repurchase agreement market rates on bank liquidity for small and medium banks. We conclude that banks have become more liquid in the post-crisis period, especially the larger banks (large and money center banks). We show that real estate loan portfolio exposures have reverted to pre-crisis levels for money center banks and remained flat for all other bank samples.

Suggested Citation

  • Egly, Peter V. & Escobari, Diego & Johnk, David W., 2014. "The Impact of Government Intervention on the Stabilization of Domestic Financial Markets and on U.S. Banks’ Asset Composition," MPRA Paper 62244, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:62244
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    File URL: https://mpra.ub.uni-muenchen.de/62244/1/MPRA_paper_62244.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank Liquidity; Government Intervention; Quantitative Easing; Dynamic Panel Data Methods;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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