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What Explains the Difference in Leverage between Banks and Non-Banks?

56 Pages Posted: 5 Mar 2016 Last revised: 8 Mar 2016

Tobias Berg

Frankfurt School of Finance & Management

Jasmin Gider

University of Bonn - Institute for Financial Economics and Statistics

Date Written: February 29, 2016

Abstract

Banks have much more leverage than non-banks. This paper uses a joint sample of banks and non-banks between 1965 and 2013 to analyze the determinants of this leverage difference. We find that one single factor - asset risk - is able to explain up to 90% of this difference. Banks' assets consist of a diversified portfolio of non-bank debt. Therefore, banks have a much lower asset risk than non-banks. Since asset risk is a major determinant of capital structure choice, this single factor is able to explain a large fraction of the difference between bank and non-bank leverage.

Keywords: Bank Capital, Bank Leverage, Capital Regulation

JEL Classification: G21, G32

Suggested Citation

Berg, Tobias and Gider, Jasmin, What Explains the Difference in Leverage between Banks and Non-Banks? (February 29, 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2739606

Tobias Berg

Frankfurt School of Finance & Management ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

Jasmin Gider (Contact Author)

University of Bonn - Institute for Financial Economics and Statistics ( email )

Adenauerallee 24-42
Bonn, 53113
Germany
+49288737994 (Phone)

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