Bank Heterogeneity and Capital Allocation: Evidence from 'Fracking' Shocks

58 Pages Posted: 3 Dec 2013 Last revised: 2 Oct 2014

See all articles by Matthew C. Plosser

Matthew C. Plosser

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: September 1, 2014

Abstract

This paper empirically investigates banks’ investment allocations over the recent business cycle. By exploiting unconventional energy development, I identify unsolicited deposit shocks and estimate banks’ allocation of these deposits. In the pre-recession period, banks lend 38% of incremental deposits; however, during the downturn banks favor liquid assets and lending allocations fall to 22%. Banks with low risk tolerance and less access to liquidity are particularly sensitive to the decline in economic conditions, choosing securities and cash, respectively. The findings identify significant heterogeneity in the willingness of banks to allocate capital during adverse times.

Keywords: banks, natural experiment, liquidity, shock, risk

JEL Classification: G21

Suggested Citation

Plosser, Matthew C., Bank Heterogeneity and Capital Allocation: Evidence from 'Fracking' Shocks (September 1, 2014). Available at SSRN: https://ssrn.com/abstract=2362499 or http://dx.doi.org/10.2139/ssrn.2362499

Matthew C. Plosser (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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