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Federal Reserve Bank of New York
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On the scale of financial intermediaries
Tobias Adrian
Nina Boyarchenko
Hyun Song Shin

This paper studies the economic scale of financial institutions. We show that banks and security broker-dealers actively smooth book equity by adjusting payouts. The smoothing of book equity is associated with procyclical book leverage and procyclical net payouts. In contrast, market leverage largely reflects movements in valuation levels as measured by book-to-market ratios. The 2008 crisis caused a structural break, after which the growth rates of the banking and dealer sectors have been subdued relative to pre-crisis levels. We draw conclusions for theories of financial intermediation and for capital regulation..

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Tobias Adrian & Nina Boyarchenko & Hyun Song Shin, On the scale of financial intermediaries, Federal Reserve Bank of New York, Staff Reports 743, 01 Oct 2015, revised 01 Dec 2016.
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Note: Previous title: "The Cyclicality of Leverage"
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Keywords: financial intermediation; macro-finance; capital regulations
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