Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/130630 
Year of Publication: 
2015
Series/Report no.: 
Staff Report No. 743
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
This paper studies the question of the economic scale of financial institutions. We show that banks actively smooth book equity by adjusting payouts to achieve a desired trajectory of book equity. The countercyclical nature of net payouts of financial institutions leads to procyclical book leverage, while market leverage is nearly entirely reflective of movements in book-tomarket ratios. There is an apparent structural break after the 2008 crisis, indicated by the banking sector's subdued growth rate relative to pre-crisis levels. Market volatility dampens the intermediary leverage cycle. We draw conclusions for theories of financial intermediation and for capital regulation.
Subjects: 
financial intermediation
market volatility
macro-finance
JEL: 
E02
E32
G00
G28
Document Type: 
Working Paper

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