Header

UZH-Logo

Maintenance Infos

Risky adjustments or adjustments to risks: Decomposing bank leverage


Koch, Cathérine Tahmee (2014). Risky adjustments or adjustments to risks: Decomposing bank leverage. Journal of Banking and Finance, 45:242-254.

Abstract

By use of cointegration analysis, this paper splits bank leverage into a short- and long-run dimension. Regarding the long run, if banks’ leverage ratios or related liability shares are stable over time, they form a cointegrating relationship. Thus, cointegration tests indicate whether banks’ liability ratios were stable or subject to structural breaks during the financial crisis in 2007 and 2008. By endogenous identification of structural breaks, my analysis tracks the precise channels of banks’ leverage adjustments. Findings on the long run suggest that banks cut their leverage twice. In June 2007 banks significantly reduced their foreign debt, while in April 2008 they withdrew from interbank borrowing. Regarding the short run, I study how banks adjust to the dynamics of risk proxies from distinct financial markets. Findings on the short run point out that banks’ reactions to risks differ considerably across different types of financial markets.

Abstract

By use of cointegration analysis, this paper splits bank leverage into a short- and long-run dimension. Regarding the long run, if banks’ leverage ratios or related liability shares are stable over time, they form a cointegrating relationship. Thus, cointegration tests indicate whether banks’ liability ratios were stable or subject to structural breaks during the financial crisis in 2007 and 2008. By endogenous identification of structural breaks, my analysis tracks the precise channels of banks’ leverage adjustments. Findings on the long run suggest that banks cut their leverage twice. In June 2007 banks significantly reduced their foreign debt, while in April 2008 they withdrew from interbank borrowing. Regarding the short run, I study how banks adjust to the dynamics of risk proxies from distinct financial markets. Findings on the short run point out that banks’ reactions to risks differ considerably across different types of financial markets.

Statistics

Citations

2 citations in Web of Science®
2 citations in Scopus®
Google Scholar™

Altmetrics

Downloads

43 downloads since deposited on 10 Nov 2014
22 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:August 2014
Deposited On:10 Nov 2014 09:53
Last Modified:05 Apr 2016 18:29
Publisher:Elsevier
ISSN:0378-4266
Publisher DOI:https://doi.org/10.1016/j.jbankfin.2014.03.017

Download

Download PDF  'Risky adjustments or adjustments to risks: Decomposing bank leverage'.
Preview
Content: Accepted Version
Filetype: PDF
Size: 721kB
View at publisher