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Banks Adjust Slowly: Evidence and Lessons for Modeling

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  • Begenau, Juliane

    (Stanford GSB & NBER)

  • Bigio, Saki

    (UCLA & NBER)

  • Majerovitz, Jeremy

    (MIT)

Abstract

We investigate the behavior of bank balance sheets in the United States during 2007-2015. The goal is to deepen the understanding of the behavior of banks. During this period, bank aggregate book-equity losses were entirely offset by equity issuances whereas market-value losses were catastrophic and never recovered. We find evidence that supports a theory where banks target market leverage, but where adjustments to a target are very gradual. We also find that, in contrast to the pre-crisis period, during the post-crisis banks relied more on retained earnings rather than on assets sales to adjust to a market leverage target. We present a heterogeneous-bank model that rationalizes these facts and can serve as a building block for future work.

Suggested Citation

  • Begenau, Juliane & Bigio, Saki & Majerovitz, Jeremy, 2018. "Banks Adjust Slowly: Evidence and Lessons for Modeling," Research Papers 3672, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3672
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    File URL: https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/461321
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    Cited by:

    1. Juliane Begenau, 2018. "Comment on "Government Guarantees and the Valuation of American Banks"," NBER Chapters, in: NBER Macroeconomics Annual 2018, volume 33, pages 146-156, National Bureau of Economic Research, Inc.

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