Procyclicality of U.S. Bank Leverage

Posted: 15 Sep 2017

See all articles by Christian Laux

Christian Laux

Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF); European Corporate Governance Institute (ECGI)

Thomas Rauter

University of Chicago - Booth School of Business

Date Written: May 1, 2017

Abstract

In light of the current debate about the link between accounting and financial stability, we investigate the determinants of procyclical book leverage for U.S. commercial and savings banks. We find that total asset growth and GDP growth are both positively related to book leverage growth. Our evidence is not consistent with the notion that fair value accounting contributes to procyclical leverage or that historical cost accounting reduces procyclicality. Overall, the business model of banks is more important for procyclical leverage than accounting or regulatory risk weights.

Keywords: Banks; Fair Value Accounting; Financial Crisis; Leverage; Procyclicality; Risk-Based Capital Regulation

JEL Classification: E32; G20; G28; G32; M41

Suggested Citation

Laux, Christian and Rauter, Thomas, Procyclicality of U.S. Bank Leverage (May 1, 2017). Journal of Accounting Research, Vol. 55, No. 2, 2017, Available at SSRN: https://ssrn.com/abstract=3036050

Christian Laux (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Thomas Rauter

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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