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Bank Capital Redux: Solvency, Liquidity, and Crisis

Author

Listed:
  • Òscar Jordà
  • Björn Richter
  • Moritz Schularick

    (Universität Bonn = University of Bonn, CEPR - Center for Economic Policy Research, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Alan Taylor

Abstract

What is the relationship between bank capital, the risk of a financial crisis, and its severity? This article introduces the first comprehensive analysis of the long-run evolution of the capital structure of modern banking using newly constructed data for banks' balance sheets in 17 countries since 1870. In addition to establishing stylized facts on the changing funding mix of banks, we study the nexus between capital structure and financial instability. We find no association between higher capital and lower risk of banking crisis. However, economies with better capitalized banking systems recover faster from financial crises as credit begins to flow back more readily.

Suggested Citation

  • Òscar Jordà & Björn Richter & Moritz Schularick & Alan Taylor, 2021. "Bank Capital Redux: Solvency, Liquidity, and Crisis," Post-Print hal-03944475, HAL.
    • Handle: RePEc:hal:journl:hal-03944475
    DOI: 10.1093/restud/rdaa040
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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