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

59 Pages Posted: 11 Oct 2014

See all articles by Matthew C. Plosser

Matthew C. Plosser

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: October 1, 2014

Abstract

This paper empirically investigates banks’ investment allocations over the recent business cycle. I identify unsolicited deposit shocks resulting from unconventional energy development and estimate bank allocations of these deposits. In the pre-recession period, banks lend 38 percent of incremental deposits; however, during the downturn, banks favor liquid assets and lending allocations fall to 22 percent. Banks with low risk tolerance or 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: financial intermediation, banks, business cycles

JEL Classification: G21, E32

Suggested Citation

Plosser, Matthew C., Bank Heterogeneity and Capital Allocation: Evidence from 'Fracking' Shocks (October 1, 2014). FRB of New York Staff Report No. 693, Available at SSRN: https://ssrn.com/abstract=2507980 or http://dx.doi.org/10.2139/ssrn.2507980

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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