Procyclicality of U.S. Bank Leverage |
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Authors: | CHRISTIAN LAUX THOMAS RAUTER |
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Affiliation: | WU (Vienna University of Economics and Business) |
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Abstract: | In light of the current debate about the link between accounting and financial stability, we investigate the determinants of procyclical book leverage for U.S. commercial and savings banks. We find that total asset growth and GDP growth are both positively related to book leverage growth. Our evidence is not consistent with the notion that fair value accounting contributes to procyclical leverage or that historical cost accounting reduces procyclicality. Overall, the business model of banks is more important for procyclical leverage than accounting or regulatory risk weights. |
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Keywords: | E32 G20 G28 G32 M41 banks fair value accounting financial crisis leverage procyclicality risk‐based capital regulation |
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