Capital Structures and Portfolio Composition During Banking Crisis: Lessons from Argentina 1995

Author/Editor:

Alberto M. Ramos

Publication Date:

August 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper constructs a theoretical framework that rationalizes banks’ short- and long-run adjustment dynamics—in portfolio composition and in the capital structure—following a period of financial distress. The model captures stylized facts about banks’ behavior following a shock to the capital base—namely, the rush to liquidity and credit crunch. Bank panel data show that Argentine domestic retail banks underwent a period of adjustment of six quarters following the Mexican devaluation crisis, reducing their risk-exposure since, owing to bank capital scarcity, depositors became less prone to tolerate bank default risk. Foreign-owned banks suffered a milder shock and adjusted immediately.

Series:

Working Paper No. 1998/121

Subject:

Banking Bonds Capital adequacy requirements Deposit insurance Financial crises Financial institutions Insurance Loans Stocks

English

Publication Date:

August 1, 1998

ISBN/ISSN:

9781451854350/1018-5941

Stock No:

WPIEA1211998

Pages:

54

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