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Market liquidity shortage and banks' capital structure and balance sheet adjustments: evidence from U.S. commercial Banks

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  • Thierno Barry

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Alassane Diabaté

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Amine Tarazi

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

Abstract

Using quarterly data of U.S. commercial banks, we investigate the impact of market liquidity shortages on banks' capitalization and balance sheet adjustments. Our findings reveal that an acute liquidity shortage leads small U.S. commercial banks, but not large ones, to positively adjust their total capital ratio. Small banks adjust their total capital ratio by downsizing, by restricting dividend payments, by decreasing the share of assets with higher risk weights and specifically by extending less loans. Furthermore, the positive impact on total capital ratios is stronger for small banks which are more reliant on market liquidity and small banks operating below their target capital ratio.

Suggested Citation

  • Thierno Barry & Alassane Diabaté & Amine Tarazi, 2019. "Market liquidity shortage and banks' capital structure and balance sheet adjustments: evidence from U.S. commercial Banks," Working Papers hal-01965938, HAL.
    • Handle: RePEc:hal:wpaper:hal-01965938
    Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-01965938v2
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