Profits and balance sheet developments at U.S. commercial banks in 2007
Reviews recent developments in the balance sheets and in the profitability of U.S. commercial banks. The article discusses how developments in the U.S. banking industry in 2007 and early 2008 were related to changes in financial markets and in the broader economy.
What do we know about regional banks? An exploratory analysis
This study tries to get a sense of the topography of the regional banking landscape. We focus on bank holding companies and banks with $10 billion to $50 billion in assets and look for factors that potentially explain regional bank health from 2008 to 2013. Our dataset is a combination of bank Call Report data and confidential supervisory data. Our analysis shows that regional banks are not a monolithic group, and different factors explain bank safety and soundness for different types of banks.
Business complexity and risk management: evidence from operational risk events in U. S. bank holding companies
How does business complexity affect risk management in financial institutions? The commonly used risk measures rely on either balance-sheet or market-based information, both of which may suffer from identification problems when it comes to answering this question. Balance-sheet measures, such as return on assets, capture the risk when it is realized, while empirical identification requires knowledge of the risk when it is actually taken. Market-based measures, such as bond yields, not only ignore the problem that investors are not fully aware of all the risks taken by management due to ...
Density Forecasts in Panel Data Models : A Semiparametric Bayesian Perspective
This paper constructs individual-specific density forecasts for a panel of firms or households using a dynamic linear model with common and heterogeneous coefficients and cross-sectional heteroskedasticity. The panel considered in this paper features a large cross-sectional dimension N but short time series T. Due to the short T, traditional methods have difficulty in disentangling the heterogeneous parameters from the shocks, which contaminates the estimates of the heterogeneous parameters. To tackle this problem, I assume that there is an underlying distribution of heterogeneous parameters, ...
Tapping into Financial Synergies : Alleviating Financial Constraints Through Acquisitions
The paper examines whether financially constrained firms are able to use acquisitions to ease their constraints. The results show that acquisitions do ease financing constraints for constrained acquirers. Relative to unconstrained acquires, financially constrained firms are more likely to use undervalued equity to fund acquisitions and to target unconstrained and more liquid firms. Using a propensity score matched sample in a difference-in-difference framework, the results show that constrained acquirers become less constrained post-acquisition and relative to matched non-acquiring firms. ...
Internationalization and bank risk
This paper documents a positive relation between internationalization and bank risk. This is consistent with the empirical dominance of the market risk hypothesis ? whereby internationalization increases banks' risk due to market-specific factors in foreign markets ? over the diversification hypothesis ? whereby internationalization allows banks to reduce risk through diversification of their operations. The results continue to hold following a variety of robustness tests, including endogeneity and sample selection bias. We also find that the magnitude of this effect is more pronounced during ...
Transformation of corporate scope in U.S. banks: patterns and performance implications
Using a novel database containing the time-series details of the organizational structure of individual bank holding companies, this paper presents the first population-wide study of the transformation in business scope of U.S. banks. Expanding scope has a negative impact on performance on average. However, we find that firms whose expansion keeps them closer to the prevailing ?modal bank? are better off compared with those pursuing generic diversification. Moreover, we find that early expanders into particular activities benefit more, whereas late adopters, rather than benefitting by ...
Firm Entry and Employment Dynamics in the Great Recession
The 2007-2009 recession is characterized by: a large drop in employment, an unprecedented decline in firm entry, and a slow recovery. Using confidential firm-level data, I show that financial constraints reduced employment growth in small relative to large firms by 4.8 to 10.5 percentage points. The effect of financial constraints is robust to controlling for aggregate demand and is particularly strong in small young firms. I show in a heterogeneous firms model with endogenous firm entry and financial constraints that a large financial shock results in a long-lasting recession caused by a ...
Firms’ Precautionary Savings and Employment during a Credit Crisis
Can the macroeconomic effects of credit supply shocks be large even when a small share of firms are credit-constrained? I use U.K. firm-level accounting data to discipline a heterogeneous-firm model where the interaction between real and financial frictions induces precautionary cash holdings. In the data, firms increased their cash ratios during the last recession, and cash-intensive firms displayed higher employment growth. A tightening of firms’ credit conditions generates the same dynamics in the model. Unconstrained firms pre-emptively respond to credit supply shocks; this ...
Shared Destinies? Small Banks and Small Business Consolidation
We identify a new source of bank consolidation in the United States. For decades, boththe financial and real sides of the economy have experienced considerable consolidation. Weshow that banking-sector consolidation is, in part, a consequence of real-sector consolidation;because small banks are a disproportionate source of small-business credit, they are disproportionately exposed to shocks to small-business growth. Using a Bartik instrument based onnational small-business trends and county-level industry exposure, we show that changes tothe real-side demand for small-business credit is ...