Does Banks’ Systemic Importance Affect Their Capital Structure and Balance Sheet Adjustment Processes?
53 Pages Posted: 16 Jun 2017 Last revised: 21 Dec 2018
Date Written: December 20, 2018
Frictions prevent banks to immediately adjust their capital ratio towards their desired and/or imposed level. This paper analyzes (i) whether or not these frictions are larger for regulatory capital ratios vis-à-vis a plain leverage ratio; (ii) which adjustment channels banks use to adjust their capital ratio; and (iii) how the speed of adjustment and adjustment channels differ between large, systemic and complex banks versus small banks. Our results, obtained using a sample of listed banks across OECD countries for the 2001-2012 period, bear critical policy implications for the implementation of new (systemic risk-based) capital requirements and their impact on banks’ balance sheets, specifically lending, and hence the real economy.
Keywords: capital structure, speed of adjustment, systemic risk, systemic size, bank regulation, lending, balance sheet composition
JEL Classification: G20, G21; G28
Suggested Citation: Suggested Citation