U.S. Bank Behavior in the Wake of the 2007

U.S. Bank Behavior in the Wake of the 2007–2009 Financial Crisis

By Dalia S Hakura, Ralph Chami, Thomas F. Cosimano, Adolfo Barajas

May 1, 2010

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Dalia S Hakura, Ralph Chami, Thomas F. Cosimano, and Adolfo Barajas. U.S. Bank Behavior in the Wake of the 2007–2009 Financial Crisis, (USA: International Monetary Fund, 2010) accessed September 20, 2024

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

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.

Subject: Bank credit, Banking, Capital adequacy requirements, Commercial banks, Loans

Keywords: Bank capital, Banking system, Strike price, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/131
Stock No:

WPIEA2010131
ISBN:

9781455201143
ISSN:

1018-5941

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