XXV Edition

1-2 December 2016"

Heterogeneous Procyclicality of Bank Leverage: Empirical Evidence of U.S. Bank Holding Companies

Park Kyounghoon, Bank of Korea

Since the recent financial crisis, the procyclical leverage of banks has been highlighted, as it is an important mechanism in propagating financial shocks to the real economy. Procyclical leverage has been identified in investment banks due to the active balance sheet management based on the Value-at-Risk rule or mark-to-market accounting. However, evidence for commercial banks and universal banks is ambiguous. In this study, I provide empirical evidence of heterogeneity in the procyclical leverage of the U.S. commercial banks and universal banks across different periods and present some underlying mechanisms of heterogeneity. The findings shed light on the necessity of developing measures for heterogeneous procyclicality based on different business models and embedding the stylized facts in the macro-model for the study of business cycle dynamics.

Area: Financial Stability

Keywords: Commercial Bank, Universal Bank, Procyclical Leverage

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