Abstract

http://ssrn.com/abstract=2158780
 
 

References (13)



 


 



The Effect of State Solvency on Bank Values and Credit Supply: Evidence from State Pension Cut Legislation


Lee J. Cohen


University of Georgia - Department of Finance

Marcia Millon Cornett


Bentley University - Department of Finance

Hamid Mehran


Federal Reserve Bank of New York

Hassan Tehranian


Boston College - Department of Finance

April 14, 2015


Abstract:     
We find the financial condition of states impacts bank credit supply through their municipal bond holdings. In particular, we treat sudden political and statutory actions during the 2011 union bargaining rights debates in Wisconsin and Ohio as exogenous shocks to state solvency. We show bank valuations and municipal bond spreads adjust to the announcements, and, over longer horizons, a new lending channel linked to state solvency emerges, whereby banks supply credit as municipal bond appreciations free up capital.

Number of Pages in PDF File: 57

Keywords: Credit supply, financial institutions, bank intermediation, municipal debt, public pensions

JEL Classification: G11, G21, G28, H72, H74, H75


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Date posted: October 10, 2012 ; Last revised: May 27, 2015

Suggested Citation

Cohen, Lee J. and Cornett, Marcia Millon and Mehran, Hamid and Tehranian, Hassan, The Effect of State Solvency on Bank Values and Credit Supply: Evidence from State Pension Cut Legislation (April 14, 2015). Available at SSRN: http://ssrn.com/abstract=2158780 or http://dx.doi.org/10.2139/ssrn.2158780

Contact Information

Lee J. Cohen
University of Georgia - Department of Finance ( email )
Terry College of Business
Athens, GA 30602-6253
United States
Marcia Millon Cornett
Bentley University - Department of Finance ( email )
175 Forest Street
Waltham, MA 02154
United States
Hamid Mehran
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
212-720-6215 (Phone)
Hassan Tehranian (Contact Author)
Boston College - Department of Finance ( email )
Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)
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