Overleveraging , banking sector , Vector STAR , real economy , credit ows , regime switch
Abstract:
Overleveraging of the banking sector has been considered as one of the main
causes of the 2007-09 financial crisis and the subsequent great recession. It was also
of major concern for the subsequent BIS regulatory policies resulting in Basel III
and its request for higher capital requirements. It has now become highly relevant
for the planned European banking union. Overleveraging of the banking sector
exposes the financial sector and the macroeconomy to vulnerabilities, but also, as
critics state, seems to constrain credit
ows to the private sector. We present here a
measure of overleveraging, defined as the difference of actual and sustainable debt,
conduct an empirical study on overleveraging for 40 banks in Europe, and study the
vulnerabilities and credit contractions that can arise subsequently. Before the year
2004 overleveraging has not been a serious problem as leverage was on a sustainable
level. However, in the run-up to the financial crisis, actual and optimal debt ran
apart and the banking sector began to suffer from overleveraging. We use a nonlinear
Vector STAR model to evaluate the hypothesis that periods of increasing
debt levels are accompanied by more severe credit constraints than periods of low
leveraging. We demonstrate this for country groups across Europe.
Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.
![[img]](https://madoc.bib.uni-mannheim.de/style/images/fileicons/application_pdf.png)
Search Authors in