Abstract

https://ssrn.com/abstract=2467761
 


 



Bank Capital, Risk-taking, and the Composition of Credit


Milton Harris


University of Chicago - Finance

Christian C. Opp


University of Pennsylvania - The Wharton School

Marcus M. Opp


University of California, Berkeley - Finance Group

January 24, 2017


Abstract:     
We propose a general equilibrium framework to analyze the cross-sectional distribution of credit and its exposure to shocks to the financial system, such as changes to bank capital, capital requirements, and interest rates. We characterize how over- and underinvestment in different parts of the borrower distribution are linked to the capitalization of the banking sector and the distribution of borrowers' risk characteristics and bank dependence. Our model yields a parsimonious asset pricing condition for firms' cost of capital that sheds light on heterogeneity in interest rate pass-through across borrower types, as well as its dependence on the health of the banking sector.

Number of Pages in PDF File: 52

Keywords: Risk-taking, Credit-rationing, Composition of credit supply, Bank regulation, Bailouts, FDIC insurance

JEL Classification: G21, G28


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Date posted: July 19, 2014 ; Last revised: January 30, 2017

Suggested Citation

Harris, Milton and Opp, Christian C. and Opp, Marcus M., Bank Capital, Risk-taking, and the Composition of Credit (January 24, 2017). Available at SSRN: https://ssrn.com/abstract=2467761 or http://dx.doi.org/10.2139/ssrn.2467761

Contact Information

Milton Harris
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773) 702-2549 (Phone)
(773) 753-8310 (Fax)
HOME PAGE: http://faculty.chicagobooth.edu/milton.harris/

Chicago Booth School of Business Logo

Christian C. Opp
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-573-3186 (Phone)

Marcus M. Opp (Contact Author)
University of California, Berkeley - Finance Group ( email )
Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
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