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Essays on Banking, Credit and the Macroeconomy

  • Marodin, Fabrizio Almeida
Publication Date
Jan 01, 2021
eScholarship - University of California
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This dissertation is composed of three empirical studies on banking, credit and the macroeconomy. The first chapter revisits the Roaring Twenties (1920s) to investigate how shocks to credit supply originating from the financial sector interacted with stock prices and macroeconomic fluctuations, and how effective was monetary policy aimed at credit stabilization. I find that financial factors were an important determinant of real output, and monetary policy contraction implied a relevant output/price level loss while not sufficient to stabilize credit and stock prices growth. Besides, the existence of a channel between credit supply in the form of brokers' loans and the level of stock prices is confirmed. The second chapter studies how bank capital relates to credit growth during periods of financial distress. I propose an econometric approach which considers portfolio adjustment strategies as discrete choices made by the bankers. Using this framework, I analyze the 1990s ``credit crunch'' and find evidence that the contraction in lending was probably not driven by the adoption of risk-based capital requirements, as part of the Basel Accord. Banks were more likely recovering from negative shocks to capital, constrained by leverage ratio requirements, and reacting to the negative economic environment. The third chapter studies the effects of bank capital regulation in credit origination by investigating the introduction of the Basel III Leverage Ratio. I find that banks affected by the Supplementary Leverage Ratio (SLR) requirement, finalized in 2014, reacted by increasing risk-taking and interest rates on mortgages. There is evidence of heterogeneous effects of policy, in which borrowers of higher risk are more affected. In addition, the aggregate increase in credit supply resulting from the adjustment is correlated with higher future home prices at the local level. The findings carry implications for the revision of post-crisis bank regulation. They indicate that a raise in bank leverage limits can coexist with the expansion of credit conditions, contradicting common claims of the banking industry against this form of capital requirement.

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