Citation

Discussion Paper Details

Please find the details for DP14524 in an easy to copy and paste format below:

Full Details

Title: The aggregate demand for bank capital

Author(s): Milton Harris, Christian Opp and Marcus M. Opp

Publication Date: March 2020

Keyword(s): Bailouts, bank capital, Composition of credit, Credit rationing, Crowding out, Institutional asset pricing, Non-bank competition and Overinvestment

Programme Area(s): Financial Economics

Abstract: We propose a novel conceptual approach to transparently characterizing credit market outcomes in economies with multi-dimensional borrower heterogeneity. Based on characterizations of securities' implicit demand for bank equity capital, we obtain closed-form expressions for the composition of credit, including a sufficient statistic for the provision of bank loans, and a novel cross-sectional asset pricing relation for securities held by regulated levered institutions. Our framework sheds light on the compositional shifts in credit prior to the 07/08 financial crisis and the European debt crisis, and can provide guidance on the allocative effects of shocks affecting both banks and the cross-sectional distribution of borrowers.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14524

Bibliographic Reference

Harris, M, Opp, C and Opp, M. 2020. 'The aggregate demand for bank capital'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14524