Bank Heterogeneity and Capital Allocation: Evidence from 'Fracking' Shocks

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper empirically investigates banks' investment allocations over the recent business cycle. I identify unsolicited deposit shocks resulting from unconventional energy development and estimate bank allocations of these deposits. In the pre-recession period, banks lend 38 percent of incremental deposits; however, during the downturn, banks favor liquid assets and lending allocations fall to 22 percent. Banks with low risk tolerance or less access to liquidity are particularly sensitive to the decline in economic conditions, choosing securities and cash, respectively. The findings identify significant heterogeneity in the willingness of banks to allocate capital during adverse times.

Exporting Liquidity: Branch Banking and Financial Integration

“…Two previous studies test how the shale booms affected banks and bank lending, as well local real outcomes. Plosser () studies the impact on banks, finding that exposure to shale booms comes with increased bank lending as well as holdings of securities. These results are consistent with the idea that bank financing costs decline with the advent of shale booms.…”

“…Oil and gas companies pay significant mineral royalty payments to landowners to develop shale resources. This wealth windfall results in increased deposit supply for banks with branches in shale‐boom counties (Gilje () and Plosser ()). It also allows local landowners to pay down outstanding debt, further amplifying banks’ liquidity windfalls.…”

Exporting Liquidity: Branch Banking and Financial Integration

“…We exploit an exogenous positive shock to bank deposits caused by mineral royalty payments to local landowners for the development of shale gas by oil and gas companies. These payments increase deposits at banks with branches in shale-boom counties (Gilje, 2011 andPlosser, 2011). Prospecting and development for shale has resulted in 327 banks receiving 3 deposit windfalls in different years between 2003 and 2010 as new discoveries were made.…”

Oil Price, Overleveraging and Shakeout in the Shale Energy Sector -- Game Changers in the Oil Industry

“…Kilian (2014) expresses concerns regarding the uncertainty in the persistence and scope of the shale oil boom, given its rapid development in the past decade. Plosser (2014) and Domanski et al (2015) study the increasing levels of debt held by the shale companies. While Domanski et al (2015) provide an analysis of the sector borrowing as a whole, Plosser (2014) concentrates on the levels of deposits and the willingness of banks to lend to the shale oil companies.…”

“…Plosser (2014) and Domanski et al (2015) study the increasing levels of debt held by the shale companies. While Domanski et al (2015) provide an analysis of the sector borrowing as a whole, Plosser (2014) concentrates on the levels of deposits and the willingness of banks to lend to the shale oil companies. The development of shale oil became possible due to the high global oil prices, according to Alquist (2014).…”