Office of the Comptroller of the Currency
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Institutional Affiliation: Office of the Comptroller of the Currency
Information about this author at RePEc
NBER Working Papers and Publications
|May 2019||Do Distressed Banks Really Gamble for Resurrection?|
with Itzhak Ben-David, René M. Stulz: w25794
We explore the actions of financially distressed banks in two distinct periods that include financial crises (1985-1994, 2005-2014) and differ in bank regulations, especially concerning capital requirements and enforcement. In contrast to the widespread belief that distressed banks gamble for resurrection, we document that distressed banks take actions to reduce leverage and risk, such as reducing asset and loan growth, issuing equity, decreasing dividends, and lowering deposit rates. Despite large differences in regulation between periods, the extent of deleveraging is similar, suggesting that economic forces beyond formal regulations incentivize bank managers to deleverage when their banks are in distress.
|September 2015||Banks’ Internal Capital Markets and Deposit Rates|
with Itzhak Ben-David, Chester Spatt: w21526
A common view is that deposit rates are determined primarily by supply: depositors require higher deposit rates from risky banks, thereby creating market discipline. An alternative perspective is that market discipline is limited (e.g., due to deposit insurance and/or enhanced capital regulation) and that internal demand for funding by banks determines rates. Using branch-level deposit rate data, we find little evidence for market discipline as rates are similar across bank capitalization levels. In contrast, banks’ loan growth has a causal effect on deposit rates: e.g., branches’ deposit rates are correlated with loan growth in other states in which their bank has some presence, suggesting internal capital markets help reallocate the bank’s funding.
Published: Itzhak Ben-David & Ajay Palvia & Chester Spatt, 2017. "Banks’ Internal Capital Markets and Deposit Rates," Journal of Financial and Quantitative Analysis, vol 52(05), pages 1797-1826. citation courtesy of