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Procyclicality of US Bank Leverage

63 Pages Posted: 17 Mar 2014 Last revised: 21 Dec 2016

Christian Laux

Vienna University of Economics and Business

Thomas Rauter

WU (Vienna University of Economics and Business); Vienna Graduate School of Finance (VGSF)

Date Written: December 20, 2016

Abstract

In light of the current debate about the link between accounting and financial stability, we investigate the determinants of procyclical book leverage for US commercial and savings banks. We find that total asset growth and GDP growth are both positively related to book leverage growth. Our evidence is not consistent with the notion that fair value accounting contributes to procyclical leverage or that historical cost accounting reduces procyclicality. Overall, the business model of banks is more important for procyclical leverage than accounting or regulatory risk weights.

Keywords: Banks; Fair Value Accounting; Financial Crisis; Leverage; Procyclicality; Risk-Based Capital Regulation

JEL Classification: E32; G20; G28; G32; M41

Suggested Citation

Laux, Christian and Rauter, Thomas, Procyclicality of US Bank Leverage (December 20, 2016). Available at SSRN: https://ssrn.com/abstract=2409954 or http://dx.doi.org/10.2139/ssrn.2409954

Christian Laux (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Thomas Rauter

WU (Vienna University of Economics and Business) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

HOME PAGE: http://www.thomas-rauter.com

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

HOME PAGE: http://www.thomas-rauter.com

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