On the Scale of Financial Intermediaries

37 Pages Posted: 6 Oct 2015

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Nina Boyarchenko

Federal Reserve Bank of New York

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: December 2016

Abstract

This paper studies the economic scale of financial institutions. We show that banks and security broker-dealers actively smooth book equity by adjusting payouts. The smoothing of book equity is associated with procyclical book leverage and procyclical net payouts. In contrast, market leverage largely reflects movements in valuation levels as measured by book-to-market ratios. The 2008 crisis caused a structural break, after which the growth rates of the banking and dealer sectors have been subdued relative to pre-crisis levels. We draw conclusions for theories of financial intermediation and for capital regulation..

Keywords: financial intermediation, macro-finance, capital regulations

JEL Classification: E02, E32, G00, G28

Suggested Citation

Adrian, Tobias and Boyarchenko, Nina and Shin, Hyun Song, On the Scale of Financial Intermediaries (December 2016). FRB of NY Staff Report No. 743. Available at SSRN: https://ssrn.com/abstract=2669836

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.tobiasadrian.com

Nina Boyarchenko

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7339 (Phone)
212-720-1582 (Fax)

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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