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

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

See all articles by Tobias Berg

Tobias Berg

Frankfurt School of Finance & Management

Jasmin Gider

Tilburg University - School of Economics and Management

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)

Tilburg University - School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
516
rank
49,937
Abstract Views
1,537
PlumX Metrics