Heterogenous banks and macroprudential regulations

This paper studies how financial intermediation varies across banks. Bank size is a first-order determinant of banks' capital structure in the cross-section. Largest banks have the lowest capital-to-asset ratio and the lowest ratio of Tier-1 capital against risk-weighted assets. These large banks earn a larger interest income per dollar invested in their loan portfolio than small banks, and they maintain the highest net interest margins among all banks. A cash flow sensitivity analysis shows that the largest banks are the most tightly constrained by minimum capital requirement, while all other banks maintain capital in excess of minimum capital requirement regulation. Empirically, banks do not adjust their lending portfolio dollar for dollar as their net profits increase or lever up immediately by issuing more deposits. Further, we find that the financial accelerator amplifies productivity shock in aggregate data. The impulse response to total productivity shock shows that the loan volume of the capital-constrained largest banks does not respond positively to positive productivity shocks. This is in contrast to smaller banks that increase loans when productivity improves in the economy.

Name thesis:degree_name

Master

Department dc:contributor.department

Sloan School of Management

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2019

Author dc:creator

• Bhowal, Subhendu.

Advisor dc:contributor.advisor

• Adrien Verdelhan.

• Sloan School of Management.

Statement dc:rights

• MIT theses are protected by copyright. They may be viewed, downloaded, or printed from this source but further reproduction or distribution in any format is prohibited without written permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

https://hdl.handle.net/1721.1/121836

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/121836