Portfolio and Financing Adjustments for U.S. Banks: Some Empirical Evidence

Krainer, Robert

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Portfolio and Financing Adjustments for U.S. Banks: Some Empirical Evidence

Journal of Financial Stability, Forthcoming

56 Pages Posted: 11 Jul 2008

See all articles by Robert Krainer

Robert Krainer

Wisconsin School of Business

There are 3 versions of this paper

Date Written: July 11, 2008

Abstract

This paper presents a model of the portfolio and financing adjustments of U.S. banks over the business cycle. At the core of the model is a moral hazard problem between depositors/bank regulators and stockholders. The solution to this problem takes the form of shared management of the bank. Stockholders manage the bank's portfolio and the regulator manages the financing of the portfolio. The model predicts that portfolio adjustments are made to conform to the risk aversion of shareholders and financing adjustments are made to offset changes in portfolio risk. Regression evidence for 1955-2000 fails to reject these predictions.

Keywords: Banks, Business Cycles, Basle Accord, Finance

JEL Classification: E3, G2, L2

Suggested Citation: Suggested Citation

Krainer, Robert, Portfolio and Financing Adjustments for U.S. Banks: Some Empirical Evidence (July 11, 2008). Journal of Financial Stability, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1158517