The Aggregate Demand for Bank Capital

57 Pages Posted: 28 Sep 2020 Last revised: 13 Feb 2022

See all articles by Milton Harris

Milton Harris

University of Chicago - Finance

Christian Opp

University of Rochester

Marcus M. Opp

Stockholm School of Economics - Department of Finance; Swedish House of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: September 2020


We propose a novel conceptual approach to transparently characterizing credit market outcomes in economies with multi-dimensional borrower heterogeneity. Based on characterizations of securities' implicit demand for bank equity capital, we obtain closed-form expressions for the composition of credit, including a sufficient statistic for the provision of bank loans, and a novel cross-sectional asset pricing relation for securities held by regulated levered institutions. Our framework sheds light on the compositional shifts in credit prior to the 07/08 financial crisis and the European debt crisis, and can provide guidance on the allocative effects of shocks affecting both banks and the cross-sectional distribution of borrowers.

Suggested Citation

Harris, Milton and Opp, Christian and Opp, Marcus M., The Aggregate Demand for Bank Capital (September 2020). NBER Working Paper No. w27858, Available at SSRN:

Milton Harris (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773) 702-2549 (Phone)
(773) 753-8310 (Fax)


Christian Opp

University of Rochester

300 Crittenden Blvd.
Rochester, NY 14627
United States

Marcus M. Opp

Stockholm School of Economics - Department of Finance ( email )

SE-113 83 Stockholm

Swedish House of Finance

Drottninggatan 98
111 60 Stockholm

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